The coke industry is still suffering from a huge deficit despite the production cuts that began at the end of April. On April 30, the Coking Enterprise Alliance, made up by coke producers in five provinces, issued the "Guideline for the Coke Market, May 2009".

The guideline calls on coke plants in Shanxi and Shaanxi provinces to raise the factory gate prices by 60 yuan (US$8.79) per ton, and plants in Hebei, Shandong and Inner Mongolia to raise prices by 30 yuan (US$4.39). It also called on producers to reduce output by 30-50 percent, in an effort to stabilize the coke price.

Coke plant managers said recent output limits along with an increased volume of iron production has helped tighten market supply.

But moves by the coke producers are being fiercely resisted by some steel producers. While mills in the north have largely had to acquiesce to the price rise because of low stocks of coke, southern mills have unanimously rejected the price rise, and some are even demanding a price cut. Insiders suggest however that the mills will be able to absorb a 30 – 50 yuan price increase.

It is thought coke producers in Shanxi suffered heavy losses in April due to the increased cost of raw materials. Deficits have reached around 100 yuan (US$14.66) per ton of coke, far more than can be compensated for by any feasible price increase. Reduced exports have added to the industry's woes.

The ferocious opposition to price increases from the steel industry is also a reflection of the gloomy business climate. Baosteel has decided to cut prices from June and the entire steel trade is pessimistic about Q2. The China Iron & Steel Association says the prices are still falling. And the average price has fallen lower than that in 1994, when the entire sector fell into the red.

Q1 data show that large and medium-sized iron and steel businesses suffered a gross deficit of 3.308 billion yuan (US$485.04 million), of which the first two months contributed 1.511 billion (US$221.55 million) and the March figures were even worse at 1.797 billion (US$263.49 million).

The World Steel Association predicts that global demand of steel will fall to 1.018 billion tons this year, a drop of 14.9 percent, the largest since WWII.

For more information, please consult the Chinese coverage at:

http://www.eeo.com.cn/industry/energy_chem_materials/2009/05/05/136854.shtml

(China.org.cn by Maverick Chen, May 6, 2009)