Record high port stockpiles, increased domestic refinery production and stalled industrial demand are all putting intense pressure on Chinese petroleum coke traders, pushing some to the breaking point.
"That high inventory at the port is killing traders off," one market participant said. "People can't afford to keep inventory anymore — the interest cost is killing them."
Only a few traders are likely to survive the current market fluctuation, said another participant.
Inventories at Chinese ports are now around 4-4.5mn t, adding to record high levels at the beginning of this year. There is almost 2.5mn t alone at the key northeastern port of Ri Zhao, with much of this consisting of Saudi Arabian coke, US mid-sulphur coke and Canadian coke, a third person said.
Stocks have ballooned following record high coke imports in November 2022 and January 2023, when China took 1.9mn t and 1.7mn t of coke, respectively. But demand did not bounce back after the lunar new year holidays as much as expected, and instead Chinese refineries ramped up output on stronger demand for transportation fuels following the end of the country's zero-Covid policy. This has led to domestic prices for low- and high-sulphur fuel grade coke, as well as anode-grade coke, falling well below the levels that traders paid for seaborne cargoes, causing them to hold off on selling most of this inventory.
Customs data from January and February show traders imported Argentinian and Brazilian coke at a cost of between $600-$700/t cfr. But domestic prices had crashed by the time this coke was received, leading importers to lose over $400/t on these cargoes, or around $10mn per each roughly 25,000t shipment. Some traders have been making such losses since November of last year, the second person said.
Some traders have 400,000-500,000t of coke in storage, a fourth participant said. "If prices don't increase next month, many traders will go out of business."
More than a dozen small domestic trading firms have already closed down, the first participant said.
Most domestic traders do not issue their own letters of credit, but obtain financing from large, usually state-owned, companies under 90-day payment terms, with a cash pre-payment and around a 10pc annual interest rate.
But creditors are now seeking additional cash guarantees, as the value of imported coke stocked at ports has evaporated, a fifth person said. This has squeezed companies further.
When traders can no longer afford financing costs, the stockpiled coke goes into the creditor's hands. Some have been heard to make agreements to extend the 90-day credit period. But some creditors are now reselling previously imported anode-grade coke at around $100/t lower than the price at which it was originally imported. And creditors are reselling some high-sulphur fuel grade coke at 800-900 yuan/t ($116.35-$130.89/t), prices so low that it might be more competitive to re-export the coke.
Some of this defaulted coke is now being moved into the ports' duty-free zones, suggesting that it may be re-loaded and sold outside of China. And Indian buyers say they are being offered coke that had previously been stockpiled in China.
"Sooner or later, the port is going to run out of space for these coke cargoes, and the high inventory in China of petcoke is going to flow back into the global market," the first participant said.
