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Reuters

Something does not quite add up with China's steel production rising but coal output and imports falling so far this year.
China's raw steel output was 480.76 million tonnes in the first seven months, up 2.7 per cent from a year earlier, according to data from the National Bureau of Statistics.
However, imports of metallurgical, or coking, coal used to make steel were down 12.6 per cent at 36.01 million tonnes in the same period, according to customs data.
Given that imports meet only about 10 per cent of China's coking coal needs, it is essential to look at domestic coal output.
Total coal production in China in the first seven months of the year was 2.163 billion tonnes, a decline of 1.45 per cent from the same period last year, with last month's output down 1.63 per cent from the same month last year, according to data from the China Coal Transport and Distribution Association.
What is not clear is the breakdown of thermal to coking coal within those broader production figures.

	Coking coal demand [may have] been partially met by reducing stockpiles
This means that while overall coal output is lower this year, it may be that coking coal's share of this has risen relative to thermal coal, which would offer an explanation for the mismatch between rising steel output and lower domestic coal output and imports.
However, a closer examination of the figures shows that coking coal output would have to have made major gains to account for the discrepancy.
To produce the 480.76 million tonnes of steel would take about 370.2 million tonnes of coking coal, using the World Coal Association's average of 770kg of coking coal to one tonne of steel.
Taking away imports of 36.01 million tonnes, this means that domestic coking coal would have to have supplied about 334.2 million tonnes to the steel sector.
China has for the past two years produced coking coal to thermal coal at a ratio of close to 1 to 7. If this ratio is applied to the 334.2 million tonnes of coking coal the steel industry would have needed from domestic sources in the first seven months, it would suggest total coal output of 2.339 billion tonnes. This is 176 million tonnes more than has been reported, implying that the ratio of coking coal to thermal coal has dropped to about 1 to 6.5.
It is entirely possible that this is the case, given the additional coking coal mine capacity that has been added in Shanxi province, the top domestic supplier of the steel-making ingredient.
The only other plausible explanation is that coking coal demand has been partially met by reducing stockpiles. What is most likely is that the additional coking coal demand has been met from domestic sources, despite seaborne prices falling to their lowest level in seven years.
The question then becomes whether Chinese coking coal miners can continue to increase output. About 70 per cent of Chinese coal mining companies are making losses, according to the China Coal Industry Association.
If steel output continues to grow, it becomes increasingly likely that additional coking coal demand will have to be met by imports, with the current weak prices a further incentive for steel mills to source from overseas.
Reuters


Chinese puzzle: steel output up but coal supply down

China's raw steel output was 480.76 million tonnes in the first seven months, up 2.7 per cent from a year earlier.

Business

Commodities

Guesswork required on how raised production coincides with falls in coal output and imports


Something does not quite add up with China's steel production rising but coal output and imports falling so far this year.
