EU mills attempt to cut back on Chinese met coke

Some European mills have been taking steps to boost intake of Polish and Russian metallurgical coke, in an attempt to reduce dependence on high-priced Chinese material.

High Chinese met coke prices have alarmed European steelmakers this year, although they have largely been able to sit out the price spikes because they buy most of their met coke under long-term contracts. European spot bookings of Chinese met coke have been sporadic at best, and have usually indicated a buyer caught short rather than a broad acceptance of Chinese export prices in Europe.

But European mills will soon need to enter the fray as negotiations for 2019 Chinese met coke supply deals begin in earnest next month. Some were hoping fob north China prices might have softened from year-to-date highs in September of $386.25/t for 62 CSR met coke and $397.50/t fob for 65 CSR met coke, according to Argus assessments. But prices remain elevated, in the $360s for 62 CSR met coke, and concerns are growing on unconfirmed reports of European bookings last month for Alabama met coke at $400/t cif ARA and a prompt cargo of Chinese met coke at $420/t fob — both much higher than levels at which indexes peaked.

Some Europeans are already taking steps to scale back their receipts of Chinese met coke, market participants said. One pointed to upticks in usage of Polish and Russian material — as far as availability and specifications allow — with another source noting that there is scope for Poland to supply more. Another market participant said a southern European mill that occasionally enters the spot market for Chinese met coke has been absent lately, holding back rather than seeking cargoes at its typical rate.

The pulverised coal injection (PCI) market has benefited this year from efforts to curb met coke consumption, with robust demand for both premium PCI grades and other lower-grade coals usable as PCI. PCI capacity utilisation rates have been high this year, but some market participants say there is potential for even higher injection rates.

A seller of Russian premium-grade low-volatile PCI finalised a 2019 supply deal with a regular European customer this week, with tonnage up sharply on 2018. The contract was settled on an index-linked basis, at a discount to the reference fob Australia index for low-volatile PCI.

Europeans are particularly reluctant to accept high raw material prices for 2019 because of concerns about the steel market outlook. German market participants have raised concerns about signs of weakness in the automotive sector, citing the uncertainty surrounding global trade disputes. Earlier this month, UK-based Jaguar Land Rover (JLR) announced a two-week closure at its Solihull plant from 22 October, not long after cutting shifts to a three-day week at its Castle Bromwich plant and its announcement in April of 1,000 redundancies across its plants in the West Midlands.

For now, fob north China met coke prices remain supported and show no sign of softening much, given movements in the futures market and expectations late last week that coke plants will hike prices by 100 yuan/t from around Yn2,570-2,620/t mark. That said, domestic consumption is expected to drop in the fourth quarter, accompanied by a rise in exports and a potential softening in seaborne prices.