SMM Daily Briefing: Coking Coal Market Trends in May 2025

What's Happening in the Coking Coal Market?

The coking coal market is experiencing notable shifts as of May 2025, with price indicators showing significant regional variations across China's key industrial hubs. Current data from Shanghai Metal Market (SMM) reveals a complex landscape where supply conditions are loosening despite steady demand from steel producers.

Current Price Indicators

Low-sulphur coking coal prices show a distinct regional pattern with Linfen prices hovering at 1,300 yuan/mt while Tangshan commands a premium at 1,370 yuan/mt. This 70 yuan differential reflects Tangshan's strategic proximity to major steel production centers and lower transportation costs.

For metallurgical coke, the processing method creates substantial price differentiation:

• Dry quenching process:

  • First-grade: 1,680 yuan/mt
  • Quasi-first-grade: 1,540 yuan/mt

• Wet quenching process:

  • First-grade: 1,340 yuan/mt
  • Quasi-first-grade: 1,250 yuan/mt

This price structure demonstrates a significant premium of 340 yuan/mt for dry-quenched first-grade coke compared to wet-quenched equivalents, reflecting its superior quality characteristics including higher CSR (Coke Strength after Reaction) values typically exceeding 65 versus 55-60 for wet-quenched varieties.

Supply Conditions

Coal mines across China's major producing regions are maintaining normal production levels, creating what industry analysts describe as a "loose" supply situation. This surplus has begun creating downward pressure on prices, with several key indicators pointing to weakening market fundamentals:

• Mine operators have started correcting their quoted prices downward
• Approximately 50% of online auction bids have failed in recent weeks
• Transaction prices show a consistent downward trajectory

Industry data suggests inventory-to-sales ratios at mines have crept above comfortable levels of 15-20 days, creating incentives for producers to liquidate stock even at reduced prices. This oversupply situation comes despite no significant production expansions, indicating that demand weakness rather than supply growth is the primary market driver.

How Are Coke Producers Responding to Market Conditions?

Coke producers find themselves navigating challenging market conditions while striving to maintain operational stability and profitability. Their responses to current market pressures reveal much about the industry evolution trends and adaptability.

Production Dynamics

Despite market headwinds, coking enterprises are maintaining slight profitability, with margins estimated between 1-3%, down from the more comfortable 5-8% historical averages seen in 2024. This compressed profitability hasn't yet triggered significant production cuts, with several factors contributing to continued operations:

• Production enthusiasm remains moderate as producers anticipate potential market stabilization
• Operating rates across major coking regions continue at high levels, particularly in Shanxi province
• Some producers face increasing shipment pressure due to slower offtake rates
• Delivery slowdowns are creating inventory management challenges, with days inventory outstanding metrics increasing by approximately 15% compared to Q1 2025

The continuation of high operating rates despite margin compression reflects the industry's structural realities – the significant restart costs associated with coke oven shutdowns often outweigh short-term losses, especially when producers expect market conditions to improve within 1-2 months.

Demand-Side Factors

Steel mills continue to demonstrate rigid demand for coke as an essential blast furnace input. Current dynamics show:

• Steel facilities maintain reasonable coke inventory levels (typically 10-15 days of operational coverage)
• Some steel producers have implemented strategic arrival control measures to optimize their input costs
• The fundamental supply-demand imbalance remains relatively small, preventing dramatic price collapses

This delicate balance suggests that while coke producers face pressure, the market hasn't reached a tipping point that would force widespread production curtailments or create supply disruptions for steel manufacturers.

What's Driving the Bearish Market Sentiment?

Market sentiment in China's coking coal and coke sectors has turned decidedly bearish, with multiple factors contributing to the pessimistic outlook among traders and producers.

Price Pressure Factors

The weakening cost support for coke production represents a significant driver of current market sentiment. Analysis of recent price movements reveals:

• Coking coal prices have declined approximately 2.1% week-over-week
• Based on typical input ratios, each 1% decline in coking coal prices translates to roughly 0.7% reduction in coke production costs
• Finished steel product outlooks remain pessimistic, creating downstream pressure
• Failed auction bids (approaching 50%) signal diminished buyer interest and confidence

"The market is experiencing a classic cost-push deflation scenario, where weakening input prices create expectations of further price reductions throughout the value chain," notes a recent SMM analysis report.

This price correction pattern extends beyond spot markets to futures contracts, where forward curves show contango structures (higher prices for distant delivery dates), indicating traders expect continued near-term weakness.

Market Expectations

Industry participants broadly anticipate continued stagnation in the coke market, with several key expectations emerging:

• Price reductions appear increasingly likely in the coming week
• Trader psychology has shifted decidedly bearish, with SMM sentiment index readings reaching 12-month lows
• Short-term upside potential remains limited without significant supply disruption or policy intervention
• Trading volumes have contracted as buyers adopt wait-and-see positions

This pessimistic outlook creates a self-reinforcing cycle – as buyers anticipate further price declines, they delay purchases, further weakening current demand and validating the bearish sentiment. Breaking this cycle typically requires either significant supply-side discipline or unexpected demand stimulus.

How Does This Impact the Steel Industry Supply Chain?

The interconnected nature of the coal-coke-steel value chain means that price movements and supply conditions in the coking coal sector inevitably ripple through to affect steel production economics and decision-making.

Steel Production Implications

Steel producers currently benefit from the reasonable coke inventory levels they've maintained, providing production stability despite market fluctuations. This inventory position allows for strategic approaches to procurement:

• Blast furnace operations continue uninterrupted with adequate coke supplies
• Producers can implement selective inventory management strategies
• Potential cost advantages emerge if coke prices continue their expected decline
• Steel mills must balance input cost savings against weakening finished steel prices

The relationship between coke costs and steel production economics is significant but not linear – coke typically represents 15-20% of blast furnace steel production costs. This means the recent 2.1% decline in coking coal prices potentially translates to only a 0.2-0.3% reduction in total steel production costs.

Supply Chain Dynamics

The coal-coke-steel supply chain demonstrates complex interrelationships that extend beyond simple price transmission:

1. Price movements between coal, coke, and steel show varying correlation strengths (0.85 R² between coke and steel prices in 2024)
2. Downstream pressure from weakening steel demand affects upstream purchasing decisions
3. Inventory management increasingly determines market leverage positions
4. Strategic buying patterns emerge as steel producers time purchases to capture cost advantages

"Supply chain participants are engaged in a delicate balancing act – trying to maintain operational continuity while optimizing procurement timing to capture cost advantages in a declining price environment," explains SMM's supply chain analysis.

This dynamic has created a situation where the theoretical market equilibrium price points continuously shift, complicating forecasting and strategic planning throughout the supply chain.

What Are the Regional Price Variations?

China's coking coal and coke markets display significant regional price differentials that reflect transportation infrastructure, local quality variations, and regional demand concentrations.

Geographic Price Differentials

The 70 yuan/mt premium commanded by Tangshan's low-sulphur coking coal (1,370 yuan/mt) compared to Linfen (1,300 yuan/mt) represents a 5.4% price differential that reveals important market structures:

• Transportation advantages: Tangshan's proximity to major steel production hubs reduces freight costs
• Quality considerations: Slight variations in sulfur content and coking properties influence regional pricing
• Demand concentration: Higher steel production capacity density near Tangshan creates localized demand pressure
• Environmental regulation: Differing regional environmental enforcement impacts production costs and pricing

Processing methods create even more substantial price variations, with dry quenching commanding significant premiums over wet quenching across quality grades:

Quality Premium Analysis

The quality-based pricing tiers in China's coke market reveal the production benefits that steel manufacturers attribute to higher-grade materials:

• First-grade vs. quasi-first-grade differential (dry quenching): 140 yuan/mt (9.1%)
• First-grade vs. quasi-first-grade differential (wet quenching): 90 yuan/mt (7.2%)
• Dry vs. wet quenching premium for first-grade: 340 yuan/mt (25.4%)
• Dry vs. wet quenching premium for quasi-first-grade: 290 yuan/mt (23.2%)

These differentials reflect both the production cost differences and the performance advantages in blast furnace operations. Dry-quenched coke typically delivers:

• Higher CSR values (>65 vs. 55-60 for wet-quenched)
• Improved blast furnace efficiency (2-3% higher productivity)
• Reduced CO₂ emissions by approximately 15% compared to wet quenching
• Better physical stability under blast furnace conditions

The significant price premium for dry-quenched products suggests that despite compressed margins throughout the industry, steel producers continue to value quality characteristics that improve operational efficiency and sustainability transformation performance.

FAQs About the Coke and Coal Market

What factors are currently influencing coking coal prices?

The coking coal market is experiencing downward pressure due to several interconnected factors:

• Normal production levels at mines creating adequate supply
• Loose supply conditions with inventory-to-sales ratios exceeding typical levels
• Failed auction bids reaching approximately 50%, indicating reduced buyer interest
• Downward corrections in quoted prices from coal mines
• Negative sentiment regarding near-term steel industry performance
• Strategic buyer behavior anticipating further price reductions

SMM daily briefing on coke and coal suggests that this combination of factors has created a 2.1% week-over-week price decline, with expectations of continued softening in the immediate future.

How is the coke production sector performing financially?

Coking enterprises are currently maintaining slight profitability despite market challenges:

• Margins have compressed to 1-3%, down from historical averages of 5-8%
• Production enthusiasm remains moderate as manufacturers weigh operational continuity against margin pressure
• Operating rates remain high, particularly in major production hubs
• Some producers face slowing shipments, creating inventory management challenges and potential cash flow constraints
• Days inventory outstanding has increased approximately 15% compared to Q1 2025

This financial pressure hasn't yet triggered significant production curtailments due to the high restart costs associated with coke oven shutdowns and expectations that market conditions may improve within 1-2 months.

What is the relationship between steel production and coke demand?

Steel mills continue to demonstrate rigid demand for coke as an essential input for blast furnace operations:

• Coke functions as both a fuel and reducing agent in the ironmaking process
• Typical blast furnace operations require 300-350kg of coke per ton of hot metal produced
• Coke represents approximately 15-20% of blast furnace steel production costs
• Steel mills maintain coke inventories of 10-15 days to ensure operational continuity
• Some facilities have implemented strategic arrival control measures to optimize input costs
• Quality considerations (particularly CSR values) significantly impact blast furnace performance

This technical relationship creates an inelastic baseline demand regardless of price fluctuations, though steel mills can adjust procurement timing and inventory levels in response to market conditions.

What market trends can be expected in the coming week?

Both the coking coal and coke markets are expected to remain in a stagnant state next week, with increasing possibility of price reductions:

• Bearish sentiment is likely to persist given weakening cost support
• Pessimistic outlooks for finished steel product markets continue to pressure the value chain
• Buyer behavior suggests continued "wait-and-see" positioning, delaying purchases
• Auction participation rates may further deteriorate if sentiment remains negative
• Inventory pressures could force some producers to offer price concessions to maintain cash flow

These trends reflect broader cyclical patterns in China's steel industry, though they haven't yet reached levels that would trigger significant supply-side responses such as production curtailments.

Market Outlook: Key Indicators to Watch

Understanding the future direction of China's coke and coal markets requires monitoring several critical indicators that provide early signals of changing market conditions.

Short-Term Price Indicators

Market participants should closely track these near-term signals for indications of market direction:

• Failed auction bid rates for coking coal: Currently approaching 50%, any increase above this level would signal further weakening
• Inventory levels: Current steel mill inventories of 10-15 days remain manageable; changes in this range would indicate shifting sentiment
• Shipment rates from coking enterprises: Slowing delivery rates suggest increasing inventory pressure
• Steel mill production adjustments: Blast furnace utilization rates typically lead coke demand by 1-2 weeks
• Finished steel price movements: Steel product prices showed 1.5% week-over-week declines, creating downstream pressure

These indicators collectively provide a dashboard for near-term market conditions, with particular attention needed to auction participation rates as they offer real-time demand signals.

Medium-Term Market Factors

For a broader perspective, several structural factors will shape market evolution over the coming months:

• Steel production capacity utilization: Currently averaging 83-85% nationwide but showing regional variations
• Seasonal demand patterns: Construction steel demand typically strengthens in Q3 after rainy season completion
• Government policy developments: Pending State Council infrastructure stimulus measures could boost steel demand
• Environmental regulation enforcement: Emissions standards affect both production costs and capacity utilization
• Import/export dynamics: Seaborne coking coal pricing affects domestic price formations, particularly in coastal areas

China's May 2025 PMI data (scheduled for release on May 31) will provide crucial insights into manufacturing activity trends, potentially signaling changes in steel demand that would cascade through to coke and coking coal markets.

The ongoing China demand prospects and US-China trade impacts continue to influence broader market dynamics, as do commodity prices impact on mining performance.

Disclaimer: Market forecasts involve inherent uncertainty. While this analysis reflects current market conditions based on SMM data and industry insights, unexpected policy changes, supply disruptions, or demand shifts could significantly alter market trajectories.

For deeper insights into coking coal and coke market trends, readers can explore related educational content available at Shanghai Metal Market's website, which provides daily updates on this dynamic segment of China's industrial economy.

Looking For the Next Big Mining Discovery?

Discover how real-time alerts on significant ASX mineral discoveries can give you a market-leading edge with Discovery Alert's proprietary Discovery IQ model, transforming complex mineral data into actionable investment insights. Explore historic discovery returns and begin your 30-day free trial today at Discovery Alert's dedicated discoveries page.