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Industrial insiders said Friday that upon the impact of both the macro-control move and the new policies on iron and steel industry of the Chinese government, China's coke industry is at a crossroad facing both challenges and opportunities.

At the First China Coke International Market Seminar, Hua Zugui, Chairman and CEO of China Coal and Coke Holding Ltd., said after experiencing prosperity for three years, China's coke industry now has to confront severe realities including surplus coke capacities, tight coking coal supply and declining profits.

The macro-control move and new policies on iron and steel industry of the central government since 2004 has not only cooled down the overheating investment and duplicated constructions in the industry, but also led it onto a proper road for industrial upgrade, which is of great significance to coke industry, a major upstream industry for iron and steel, said Hua.

It is estimated that China's iron and steel industry will be controlled within a reasonable scale, resulting in a gradually stable demand for coke consumption, said Hua.

According to him, with the industrial distribution of iron and steel industry tipping towards more developed regions in seashore or river areas, more coke purchase from independent coke plants is expected.

However, as steel enterprises tend to become larger, they will enjoy more pricing power when negotiating with relatively small coke enterprises, sai Hua.

Surplus coke supply has emerged in China's market. In 2005, the total coke demand is expected to be 220 million tons, while the current coke output capacity is about 260 million tons with a surplus rate of 18 percent. As 110 million tons are produced by coke plants affiliated to integrated steel mills and have no problem of surplus, the other 150 million tons capacity of independent coke enterprise will have only 110 million tons of demand, thus raising the surplus rate to 36 percent.

Together with the ever-increasing coke production cost resulted from a rapid increase of coking coal price, China's coke industry is expecting a declining profits.

As a result, many small and medium-sized coke enterprises with backward facilities are facing more fierce challenges to their survival.

According to Catherine Luo, Chief Representative of China Representative Office of ThyssenHrupp MinEnergy of Germany, a global top 500 enterprises, the expected coke international export situation is not good either.

According to her, instead of Europe, America and the Commonwealth of the Independent States, the stable growth of global steel and pig iron output in the next few years are mainly from Asia and Middle East, especially from China and India.

With several new coking plants in major importing countries coming into production in the next two years, Chinese coke producers and sellers will see a smaller export market, she said.

However, great strategic opportunities are hiding in such a severe situation, said Hua.

Being too small and scattered have been major problems troubling China's coke industry. Hua predicted that with intense market competition, coke industry is expected to see large-scale consolidation and integration. As a result, large internationalized coke enterprises will become the dominant player in the industry.

Hua said currently China's coke industry still cannot be called an industry due to its excessive dependence on iron and steel industry.

However, some good signals have emerged that some leading coke enterprises in China has set out to upgrading the industry. Centered on an overall utilization of coal resource, they aim to form a production chain of coal, coke and chemicals by expanding to coking coal upward and to coal chemicals downward.