China's cement producers in some key production regions have reduced output in reaction to the rapid run-ups in domestic coal prices pushed up their production costs, market sources said.
Leading cement producer Guangdong Tapai Group said recent surging coal prices have resulted in a significant rise in its production costs, with the cement cost estimated to increase 8.8 yuan/t when coal prices rise 100 yuan/t.
By May 11, trading levels of benchmark 5,500 Kcal/kg NAR thermal coal generally reached 940 yuan/t FOB at northern China ports, soaring more than 100 yuan/t in less than a week after the Labor Day holiday that ended May 5.
Coal is one of key ingredients for cement production, which is also used to provide electricity for cement plants. Cement producers usually pick high-calorific value grades with appropriate volatile matters and low sulfur contents. Since China banned coal imports from Australia last October, cement plants have mainly switched to some specific grades produced in Shanxi province.
The bout of coal price rally came amid strengthened industrial demand in China on the back of growing demand from the U.S. and some other major economies that are recovering from the pandemic, at a time when domestic coal supply remained in strain under safety and environmental pressures.
Strong restocking demand from cement, chemical and other industrial producers helped push domestic coal prices to keep going, but this in turn added their production costs.
Some producers in southwestern China's Guizhou province have lowered or stopped kiln capacity to reduce coal consumption following a total rise of 100 yuan/t in coal prices after the Labor Day holiday.
This combined with a tight supply of thermal coal as the province is axing the bloated industry on safety and environmental concerns, and tight inbound inflows from other provinces, leading to authorities forcing down part of cement production to prioritize power supply.
In some regions of Sichuan province, local coal prices have jumped to above 1,000 yuan/t on a DDP basis with the accumulative rise of 180 yuan/t since mid-February. Local cement producers reported mounting cost pressures and have cut 20-30% of production capacity. Some producers were expected to local cement prices to rise about 30 yuan/t in several days to come.
On May 11, cement prices increased 50 yuan/t in Beijing, Tianjin and Hebei's Tangshan. Producers in Shandong, Shanxi, Shaanxi and Gansu were also raising their prices by 10-30 yuan/t amid the rapid ramp-ups of coal prices.
Infrastructure and building projects are expected to maintain high demand of cement as well as other building materials ahead of July and August, typically the hottest period in the summer. This may spur cement producers to keep on high enthusiasm of production. But it remains to be seen whether the government would impose restrictions on unnecessary cement production to avert oversupply and to cool coal prices.
(Writing by Alex Guo Editing by Harry Huo)
For any questions, please contact us by inquiry@fwenergy.com or +86-351-7219322.