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Coke Producers Reduce Output

China's coke producers are aiming to cut production in order to maintain profit margins following recent oversupply. They also want the government to tighten controls over the fragmented industry.

Coke producers in Shanxi Province, who supply 40 percent of the world's coke, recently reached a self-imposed agreement within the Shanxi Coke Industry Association to cut coke output by 20 to 40 percent.

The move aims to cushion the recent sluggish market that has been plagued by unregulated investment over previous years.

In an effort to steer the coke industry onto a sustainable track, the National Development and Reform Commission issued a circular on July 1 tightening regulations on standards for the country's coke producers. In September it will announce a list of producers who have met these standards.

Those not listed will be ordered to shut down or upgrade their facilities.

Yue Guoqing, deputy managing director of Shanxi Coking Co Ltd, yesterday told China Daily that his company is cutting coke production by "a small proportion."

He said this is partly in response to the association's agreement and to "assure product quality for consumers."

"We are also feeling the pressure from the over-loaded market on the supply side, and we are fully co-operating with the industry association that wants more disciplined market practices," Yue said.

Market observers said the move initiated by the industry association and individual companies is largely due to the unbridled production expansion of previous years, as well as a reduction in demand. It will help the growth of the industry in the long term.

China's recent industry regulations, such as a tariff increase for the processing of pig iron and tougher controls over the iron and steel sector, have to some extent reduced steel production, thus holding down the demand for coke, said Du Deqin, from Beijing-based China Coal & Coke Holdings Ltd, a major coke producer in China.

Xu Zhuqing, with the China Coking Industry Association, said the production cut by the nation's coke companies is more a result of excessive expansion on the supply front than from a reduction in demand by the slight drop in steel output.

"China's coke turnover in May soared ahead by 27 percent, far above domestic demand for coke," Xu told China Daily.

The country's demand for coke this year is estimated to stand at 220 million tons, while the production capacity will near 260 million tons, indicating an oversupply of 18 percent, Hua Zugui, president of China Coal and Coke, told a coke conference late last month.

"Because of intensified competition among the nation's fragmented coke producers, prices have little room to increase," said Hua.

According to Qi Xiangdong, vice-secretary-general of the China Iron and Steel Association, the current market depression in the coke industry is not a result of developments in the steel sector, which still shows a robust momentum.

"Blind investment and disordered exports by the nation's undisciplined coke producers have disturbed the coke demand-supply chain, ultimately reducing coke prices and squeezing the profit margins," Qi said.

Yue, from Shanxi Coking Co, told China Daily that high production costs had further worsened the situation for coke producers, who see little possibility to pass costs onto customers.

To address the dilemma, Qi wants central government to reinforce its guidance and regulations over the coke industry. "Coke producers should also have a clear picture of the market demand and supply to avoid an over supply in investment.

"Equally important, they need to act more rationally over coke exports, which account for some 60 percent of the world's trade in coke."

(China Daily July 14, 2005)

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