China's Dalian Bourse Plans Coke, Coking Coal Futures (Update1)

BEIJING, July 6 -- Dalian Commodity Exchange plans to introduce coke futures this year and is studying plans for coking coal contracts as consumption for the raw materials rises in China, the world's biggest steelmaker.

"Due to a combination of factors, the price of coke and coking coal this year fluctuated a lot," Liu Xingqiang, the director of the bourse, China's largest derivatives market, said at a conference in the city today. "The industry's need for a risk transfer is very strong.

Dalian Commodity Exchange joins Singapore in pushing futures for bulk commodities, as demand for steel rebounds with the global economic recovery. BHP Billiton Ltd., the world's largest exporter of coking coal, this year won two price increases for the material from Asian mills after dropping annual contracts for quarterly agreements.

"It gives participants an opportunity to hedge some of their purchases and protect the downside." Andrew Driscoll, head of resources research at CLSA Asia-Pacific Markets, said by telephone. "A lot of the long term contracts are fixed in volumes but not prices, so futures will provide the industry with ways to hedge their positions."

Prices of coking coal traded in Asia rose to $225 a ton for the July quarter, up from $200 in the previous quarter, and compared with annual prices of $129 in 2009, according to Deutsche Bank AG. Prices could fall in the fourth quarter and into the first half of 2011 as global steel demand could "decelerate and potentially contract," the bank said in a June 30 report.

Trading Volume

Futures trading in China, the third-largest economy, jumped 47 percent in the first half from a year ago, according to data compiled by the Futures Industry Association, as the government cede control of prices of some commodities and allow more market participants.

The Chinese government maintains controls of prices of commodities including electricity and fuel and imposes export and import limits on products such as minor metals to prevent inflation.

CME Group Inc., the world's largest futures exchange, predicts "great growth" in Asian derivatives as the economy grows. Dalian Commodity Exchange may introduce energy, coking coal and live-hog futures contracts to spur trading volume, Liu said in October last year.

Still, trading volume on the futures contracts may take a while to pick up, according to Driscoll.

"A lot of producers and consumers have been dealing directly with each other for a number of years. They're set in their ways of doing business," said Driscoll.

China's coking coal imports may reach the second highest on record this year as domestic production can't meet demand from steelmakers, Citigroup Inc. said on April 22.