* Coke prices rose after producers meet to discuss capacity cut
* Prices also supported by new environmental crackdown on heavy industry
* Coke market still in oversupply due to falling demand from steel mills (Adds quotes and details)
BEIJING, April 23 (Reuters) - Chinese coke futures prices rallied more than 4 percent to their highest in five weeks on Monday, as a source said a group of small producers is considering slashing output to revive prices.
The most-active coke futures for delivery in September on the Dalian Commodity Exchange were up 4.3 percent at 1,938.5 yuan ($308.02) per tonne at the midday close, after rising to as much as 1,940 yuan, the highest since March 16, earlier in the session.
The gains demonstrate that the potential cut from coke producers has offset concerns of falling demand for coke and other industrial commodities. Cities in China’s polluted northern regions are starting to limit operations at some heavy manufacturing plants following the launch of fresh environmental inspections under the country’s war on smog.
The city of Handan in Hebei province, one of the most polluted cities in the north, the Shandong Coke Association and the China Coke Association held a meeting last Wednesday of about 40 small coke producers based in Hebei and Shandong province, according to a source briefed on the gathering. The source declined to be named due to the sensitivity of the matter.
At the meeting, the factories considered reducing output by at least 15 percent but did not reach a final agreement, the source said.
The two associations and the city authorities declined to comment on the meeting.
The extension of the curtailments on heavy industry that were enacted during the winter has also supported prices since they also apply to coke manufacturers. Coke is a fuel that is rich in carbon and is used to smelt steel and make cement.
For example, Xuzhou in the eastern province of Jiangsu has started new inspections this month of industrial producers, including coke plants and steel mills.
Coke supplies are falling. Inventories at the port of Lianyungang, in Jiangsu, have dropped by 40 percent since the beginning of April to 93,500 tonnes as of April 23, data from Steel Home showed. SH-LYN-COKEINV
However, market participants said the rebound in coke could be short-lived.
Bigger producers like Yancoal were still operating at full utilization rate, a coke plant manager with the company said.
Also, three coke traders said demand from steel mills has dropped because of the production curbs.
“The market is still in oversupply. Coke plants have been operating at a utilization of 77 to 78 percent as of April, up from only 60 percent in January,” said Zhang Min, coal analyst with China Sublime Information Group.
$1 = 6.2935 Chinese yuan renminbi Reporting by Meng Meng and Josephine Mason; Editing by Christian Schmollinger