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Transport problems cause coke build-up Transport problems are causing three-week stockpiles of coke in some plants, underpinning recent falling prices. Concerns have also been raised over a potential oversupply of the raw material because of rapid production expansion. "Due to the insufficient rail transportation, stocks in most coke factories have piled up for three weeks," said one manager from China Coal & Coke Holding Ltd, one of China's major coke producers. "The supply now only satisfies the big steel factories." The State Council says most railways have been busy supplying thermal coal power plants in recent weeks, leaving limited capacity for delivering other commodities. The government is worried that insufficient coke supply could force power generators to stop operation, which would intensify already severe electricity shortages in summer, the peak consumption season. Insiders said some coke producers had shifted to trucks to supply the steel mills on short haul, but the amount was quite limited because the transport hikes have made longer deliveries economically unreasonable. Road transport fees have been increasing since the government imposed tougher weight limits earlier this year. The transport charge has increased to 0.67 yuan per kilometre per ton from 0.4 yuan in earlier months, traders said. But even though the constrained transport has caused trouble on the supply side, the market has hardly felt the pinch of the supply shortfall. Coke demand is losing its momentum partly as a result of the government's move to rein back the production expansion in the steel sector. About 70-80 per cent of small steel mills with a production of less than 200,000 tons have been forced to halt operation in North China's Hebei Province and in Shandong Province in the east, according to the manager. "The demands of small steel plants are falling, while big companies have their own coke production and stocks. So the impact of the supply problem has not been reflected in the market," said the manager. The benchmark coke price has dropped to less than 1,000 yuan (US$120) a ton in June from 1,150 yuan (US$139) a ton earlier in the year, because of the sluggish consumption in steel industry. But the price picked up late last month to about 1,050 yuan (US$127) a ton. Insiders are worried that the market will be dampened unless the current rampant production expansion is brought under control. Many coke producers are building new facilities or increasing the capacity of existing coke ovens to cash in on the recent coke price hike. At the moment, 183 coke ovens are being built. They will have a combined production capacity of 68 million tons, according to China North Coke and Chemical Association, an influential industrial association. The capacity of the plants under construction will account for nearly 40 per cent of the current production in China. To curb the expansion, the government has launched a campaign to inspect new coke projects, suspending those failing to meet the stricter environmental and investment standards. All the small beehive ovens, which are inefficient and cause pollution, should be shut down. Beehive ovens now account for a quarter of China's total coke production. An official with the China Coke Industry Association said local governments should submit to the National Development Reform Commission proposals of how to deal with projects under construction by the end of July. The official, surnamed Xu, said he had no idea how many of those projects should be torn down. But according to the manager from China Coal & Coke Holding, about 20 per cent of them should be suspended. Both the manager and the official doubted whether the crack-down could be effective because of the old story of local protection. "Local governments have no idea how much beehive ovens pollute the environment and waste coal resources," said the official. "They care more about local employment and revenues." "You never know the exact numbers of the projects, especially the beehive ovens," said the official. "It is very easy to dig a hole in the ground to produce beehive coke." The official said about half of the ovens in Shanxi Province, which makes up a lion's share of the nation's coke production, are unqualified. Although Shanxi Province has pledged to move to check the over-production, many other places such as the Inner Mongolia Autonomous Region, Guangxi Zhuang Autonomous Region and Guizhou Province are catching up. In the first half of this year, the production in Guizhou and Guangxi had increased by more than 60 per cent year on ye |
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