[Ferro-Alloys.com]Stunned by soaring raw material costs, some Chinese steel mills have cut output and even started maintenance works earlier than usual as state-enforced mine closures continue to choke off the supply of key production ingredients, coke and coking coal.

Prices of coke and coking coal, that typically account for 20 percent of steel production costs, have rallied more than two-fold this year amid Beijing’s big push to curb overcapacity and pollution, hurting profits for mills.

Blast furnaces in the world’s top producer and consumer of steel are as a result operating at their lowest rate in about four months, data from industry consultancy Custeel.com shows, in contrast to earlier this year when robust demand and prices prompted mills to operate at nearly full capacity.

Furnaces across China are running at 86 percent, their lowest since June, according to the data.

In Tangshan, a major steel-producing city in China’s Hebei province, furnaces were running at 84 percent of capacity last week, versus around 90 percent in August, the data shows. Hebei accounts for a fifth of the country’s steel output.

While a seasonal weakness in demand for rebar, or reinforced steel used in construction, during the colder months may have been a reason for the output cuts, analysts said critically low raw material supplies were a major factor.

“The severe shortage of coking coal and coke has largely lifted steelmakers production cost, forcing some to cut output,” said Jin Tao, an analyst with Guotai Jun’an Futures in Shanghai.

According to Custeel.com, Jiangsu Shagang Group, China’s top private steelmaker, has suspended a rebar production line, while Zenith Steel, also based in eastern Jiangsu province, is set to start a 10-day overhaul this month, Custeel.com said.

Maintenance typically takes place in December.

Shagang declined to comment and calls to Zenith went unanswered, although Custeel.com said the moves could reduce output by about 40,000 tonnes over Nov. 10-27 for the former and by 25,000 tonnes for the latter.

Any prolonged output cuts would add to the rally in steel prices, but remove some of the upward pressure on the prices of steelmaking ingredients and curb the impact of seasonally slower demand on mills’ margins.

Earlier in the day, coking coal futures on the Dalian Commodity Exchange climbed by their 10 percent limit and coke hit its strongest since 2013, extending their months-long rally on tightening supplies.

Coke inventory among steel mills has dwindled to 2-10 days, versus the usual 15-30 days of production, said analyst Jin.

Some steel mills located far from coal production bases, such as Shanxi and Shaanxi provinces, have been hit particularly hard by the tight raw material supplies, traders said.

Several small mills in the western and southwestern regions have also cut output for the same reason, they added.

Exacerbating steelmakers’ woes are China’s stricter rules on truck transportation since September that have cut trucking capacity, adding to mills’ high costs.

“It’s not one simple reason, but complex factors including a shortage of coking coal and coke, surging prices, slower demand that has hurt rebar producers’ profit, dragged some to losses and forced some to cut output,” said Xia Junyan, investment manager at Hangzhou CIEC Trading Co in Shanghai. **Article from Internet for reference only

• [Editor:tianyawei]