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Coal prices rise: Squeezes margin for Chinese coke producers

Reporter: Yang Chengxi 丨 CCTV.com

10-26-2016 16:21 BJT

China's coal producers have seen an almost aboutface in business compared to last year. Quickly rising prices have squeezed margins for related industries such as coke, which uses charred coal as a raw material.

In a factory in Shanxi Province, one truck load of coke can sell for 27 thousand yuan. That's double the price in March. The factory's managers said they are seeing surging demands from their clients in steel factories, who want to buy coke even at higher and higher premiums.

The direct result? New coke is sold and shipped almost immediately, leaving almost no inventory.
 
"Last year when businesses were bad, we had 80 thousand tons of inventory at one time. Now we have 800 tons at most." Shi Jianguo, director of Yuanzhong Coke said.

But Shi isn't too happy about it. Rising prices don't necessarily mean higher margins. Prices for coal have been rising just as fast as coke demands, tripling in the past seven months. He is thinking about reducing production. Analysts say that's going to make things harder for China's steel makers that use coke.

"Coal factories need to keep certain capacity to generate cash flow. Although they will face slimming margins in the future, they still have to keep their machines running." Ma Junhua, director of Coal Study said.

The root cause at the end has been surging coal prices. Industry insiders warn of a price collapse, citing a similar incident back in 2013, when coal prices plunged at the end of a roller-coaster cycle.

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