High-sulphur petroleum coke prices on a cfr China basis have fallen by 28pc over the last five weeks, as sellers scramble to replace lost demand from India and await China's recovery from the Covid-19 pandemic.
While fob US Gulf high-sulphur prices have held firm on tight supply in recent weeks, this firmness has belied weakness in major demand centers, with lower freight rates absorbing the drops in delivered pricing.
Cfr China 6.5pc sulphur coke prices fell to $59/t this week, down from $82.50/t on 25 March. In just a two-week period from 25 March-8 April, prices tumbled by $18.50/t or 22pc, in what was the steepest pace on record going back to 2013.
The decline was far sharper than the 12pc drop from 25 July-1 August 2018, when the market was absorbing a 25pc tariff on US coke as part of the US-China trade war.
The drop earlier this month was so sharp in part because prices rose rapidly from February to March, as refinery and coal mine shutdowns and transportation limitations disrupted local fuel supply during the country's coronavirus response. Prices had jumped from $68/t on 5 February to $82.50/t by 11 March, at which point they leveled off.
That is, until the week of 25 March, when India announced it would enter a 21-day lockdown period that would shut down cement plants and delay unloading at ports. Traders and cement makers that had cargoes on the way to India scrambled to find somewhere else to unload, and China's recent sharp upswing in pricing made it the most attractive destination.
But the increase in offers to China came as the country's traders were already beginning to feel overstocked. Coal inventories at China's main coal transshipment port of Qinhuangdao were bulging, as utility offtake was slow to recover and domestic coal production rose. The domestic 5500kcal/kg coal price fob Qinhuangdao fell by 5.5pc from 25 March-8 April to $73.31/t, which put pressure on coke demand.
Increased supply of Saudi Arabian 8.5pc sulphur coke also pressured US 6.5pc sulphur coke demand, as the 460,000 b/d Jubail refinery owned by a state-owned Saudi Aramco-Total joint venture and the 400,000 b/d Yanbu refinery owned by an Aramco-Sinopec joint venture returned from maintenance. And Indian private sector refiners Reliance Industries and Nayara Energy have also been offering export cargoes of high-sulphur coke as local demand has waned.
With all of the cargoes en route from India, Saudi Arabia and the US, 1mn t of coke is likely to arrive to south China in May and June, one trader said.
At the same time, while one main south China-based buyer launched a tender recently to buy 1-2 cargoes per month in the second half, another major buyer in the region said it will focus only on domestic coal, cutting high-sulphur coke demand.
Until China's economy fully recovers from the pandemic, it is unlikely to consume a significantly higher amount of high-sulphur coke, despite early indications of returning to the US Gulf market. China's GDP growth was negative for the first time on record in the first quarter, and market participants are awaiting government stimulus policies before committing to much additional imports.
