The meteoric rise in coking coal prices over the last couple of months has had a painful effect on China’s steel producers, who are having to pay a lot more for coking coal, a key ingredient in steel production. The cost inflation gave rise to a protest from the China Iron and Steel Association which represents large state-owned steel mills. On Friday the country’s state-owned coal mining companies relented, and agreed to increase output, which should cause Chinese coal prices to level off.
Cranking up production is actually the opposite of what Beijing wants to do for Chinese coal. For months the Chinese government has tried to rectify overcapacity by mandating production cuts and shutting debt-ridden mines that are close to the end of their lives. Beijing has also limited coal mines to operating a maximum 276 days a year.
How will the increase in thermal coal output affect coking coal prices in China? According to the Financial Times it won’t necessarily resolve the supply squeeze of coking coal, which tightens up in winter when cold weather slows mining operations northern China and Mongolia. However, increasing the nation’s output of thermal coal will “help keep a lid on coal prices in China, reducing pressure on thermal power generators and preventing the rally in coal prices from feeding through to the power sector.”
Meanwhile on Saturday, the State Council of the Chinese government approved the merger of Baosteel and Wuhan Iron and Steel. The combined entity will be the largest steel company in China and the second largest in the world, after European steel giant ArcelorMittal, CCTV reported.