China's emission reductions trigger global coal price reduction

The core prompt: The inventory of the current power plant is at a relatively high level, and the forced power cuts and production cuts in many regions are restricting the purchase intention of the power plant.

On September 9, an official of the Guangdong Economic and Information Commission revealed that the province has already categorized and classified high-energy-consuming enterprises such as steel and cement, and started reducing energy consumption and emissions through measures such as power cuts. If you still cannot achieve the desired goal, you will reach the second or third type of business.

Shagang Group, an unnamed person from one of the major steel groups, told the reporter on the same day that the mandatory production cuts and storms have started to affect large-scale steel mills. The group has already received the government's notice of mandatory power cuts. "About 1-2 production lines are expected to be suspended completely in October, and the specific type of terminal steel products has not yet been finalized."

In August, Shagang Group's iron ore purchases plummeted by more than one-third, and coking coal imports also fell significantly earlier than before.

China's increasingly severe "emission turmoil" is causing all parties to adjust the Chinese steel mills' expectations for upstream raw materials. In June and July, the steel industry experienced a global and comprehensive reduction in production, which led to the overall decline in coal agreement prices.

Recently, the Australian mining giant BHP Billiton reached an agreement with Japanese steelmakers. In the new quarter starting from October 1, coking coal prices will be lowered from US$225/tonne in July to September to US$209/tonne.

"This round of coal price cuts has contributed to China's production cuts," said Li Ting, an analyst in the coal industry at the China Business Productivity Promotion Center.

Steel Enterprises Limited Power Storm

It is not only coking coal that is lowered in the quarterly agreement price. Recently, the international mining giants Rio Tinto and BHP Billiton plan to reduce the price of iron ore agreements in the fourth quarter by 13% to US$127/ton. Brazil’s Vale also plans to cut its iron ore price in the fourth quarter by 10% to US$135/ton.

This is the first time since the introduction of quarterly pricing this year, iron ore and coking coal, the main raw materials for steel production, have seen pricing cuts.

Li Ting, an analyst in the coal industry at the China Circulation Productivity Promotion Center, said that taking into account the control of the mining giants on the international market, it is only possible that the demand for the resource prices will be reduced. The mining giants recently lowered their prices after the financial crisis broke out in 2008.

In May of this year, global crude steel production hit the highest monthly production record after the financial crisis, but in June and July, there was a global reduction in production. Using July’s crude steel production compared to May’s production, the monthly reduction in production is about 9 million tons, of which China contributes close to 50%.

Huang Teng, general manager of Beijing Changmao Consultation Co., Ltd., who has worked for China Coal Group for many years, told the reporter that the decline in steel production in Europe and the United States was mainly due to the fact that its economic recovery was worse than expected, which led to a drop in demand for resources; The decline is the result of domestic initiatives to adjust the economic structure and increasingly stringent emission reduction measures.

In fact, the restriction of power production for the steel industry is getting worse.

The Guangdong Economic and Information Technology Commission official revealed on September 9 that the province has already categorized high-energy-consuming enterprises such as steel and cement, and first started with reducing energy consumption and emissions through measures such as power cuts, if they still cannot To achieve the desired goal, it will affect second- or third-tier companies.

According to the Galaxy Report, major crude steel producing provinces such as Hebei, Jiangsu, and Shandong have all experienced a large-scale production or shutdown. Xu Xiangchun, the information director of “My Steel Network” estimated that the monthly output reduction is expected to be around 10%. From August to December, China will roughly cut 25 million tons of crude steel.

Jiangsu's Shagang Group has also actively regulated output according to the mandatory power-reduction targets issued by the government. According to the group's sources, crude steel will not be reduced temporarily, but downstream steel rebar or wire rods may suspend 1-2 production lines in October. The specific product type will be determined again according to the market conditions at that time.

It can be expected that the reduction in production of downstream products will surely increase the company's crude steel inventories thereafter. "At that time, boiler repairs may be added to limit crude steel production and reduce inventory," the source said.

Demand for coal decreased by 132 million tons

The storm of power cuts in the steel industry will affect the coal market through at least two routes.

The above-mentioned Shagang sources said that the expected reduction in crude steel production will directly suppress the purchase of coking coal by steel mills. In August, the iron ore procurement of this company was reduced by 1 million tons compared with the normal months. Although the total purchase amount of coking coal was temporarily No significant reductions have been made, but the import volume has been reduced by about half compared to normal months.

In fact, China’s coking coal imports have been declining for three consecutive months. In July, coking coal imports totaled 3.15 million tons, a decrease of nearly 17% from the previous month.

An analysis report of Cinda Securities pointed out that according to the current iron and steel industry's idea of ​​eliminating backward production capacity, considering the decline in the energy consumption index of the steel industry, under the premise of a 20% increase in pig iron production this year, it is expected that the annual consumption of coking coal will increase. Reduced 6.66 million tons.

The second path of impact is the reduction of coal consumption of power plants caused by power curtailment of steel plants. As the largest industrial power consumer in China, its power consumption accounts for 13% of the total electricity consumption in the society. The significant reduction of steel mills' production will inevitably affect the power plant's demand for power coal.

An analysis report by Cinda Securities estimated that if the coal consumption of GDP falls by 4% and the GDP increases by 9% this year, the coal demand will be 3.16 billion tons, which is 132 million tons less than the coal demand predicted by the coal consumption level in 2009.

In fact, due to the impact of this round of abatement storms, the demand for downstream power is insufficient. The quoted price of thermal coal at Qinhuangdao Port in the coal distribution center has been reduced slightly for several consecutive weeks. Qinhuangdao Port’s coal inventories have also climbed to more than 7 million tons. This reasonably high inventory level is rarely seen during peak seasons in the peak summer season.

Huang Teng said that under the judgment of the basic balance of supply and demand for coal throughout the year, the key factor in deciding the coal market lies in the purchasing intentions of downstream power plants and steel mills, and the demand for the off-season and peak season of the market is no longer obvious. At present, the inventory of power plants is at a relatively high level, and the forced power cuts and production cuts in many regions are all constraining the purchase intention of power plants.

"The reduction in demand in the current coal market is a reduction in demand caused by man-made factors, and it does not reflect the essence of the market." He said that the current market is concerned with how long this blitz restrictive power production limit will last.