DCE to Launch Coking Coal Futures in Late June

SMM Insight 04:49:21PM Jun 14, 2012 Source:SMM

SHANGHAI, Jun. 14 (SMM) -- Approved by the State Council, coking coal futures will be launched on the Dalian Commodity Exchange by the end of June. Besides, the launch of government bond futures has been approved by the State Council, with China Securities Regulatory Commission's document expected to issue. The launch of government bond futures should be later than coking coal futures.

DCE launched coke future contract on April 15th last year. Coking coal is upstream raw material of coke, and the two resources are closely related to each other. China is the large coke producer and consumer in the world, with the largest demand for coking coal. Demand for coking coal was close to 600 million mt in 2011. In this context, it is not enough only having coke futures, combined with growing domestic demand for high grade coking coal, so it is reasonable to launch coking coal futures.

According to the preliminary plan by DCE, regarding coking coal futures, trading unit is 60/lot, and the minimum fluctuation is RMB 1/mt, with the daily trading limit 4% of the settlement price of the previous trading day; the 10th day of the contract month is the last trading day, and the last delivery date is the second trading day following the last trading day; the minimum trade margin is 5% of contract value. Coking coal futures will be delivered at both port warehouses and factories in inland producing regions, with delivery warehouse set at Jingtang, Tianjin, Rizhao, Qingdao and Lianyungang port. But the plant warehouses have not been decided yet.

Steelease sources report that coking coal should be stored no longer than three months due to quality volatility, otherwise cementation index will be affected. In this context, DCE set the effective period of warehouse warrants at one month in case of quality change.

What positive affects will the launch of coking coal futures contract have on domestic coking coal industry?

Domestic coking enterprises have been operating with low profit margins, with looses reported by some enterprises. That is because downstream steel prices are affected by domestic and international economic recession and due to firm coking coal prices at high level. The launch of coking coal futures contract will provide a safe-haven for the coking industry and help improve the status quo of the industry.

Besides, supply and demand are major factors affecting coking coal prices due to early marketization, but as coking coal prices changes significantly by regions, a uniformed price standard can be barely made. In the recent three years, domestic coking coal prices have been fluctuating larger than 10%, with the volatility reaching 22.3% in 2009, and 17.8% in 2010, and 12.5% in 2011. The launch of coking coal futures is favorable for the formation of uniformed coking coal prices.
 

DCE to Launch Coking Coal Futures in Late June

SMM Insight 04:49:21PM Jun 14, 2012 Source:SMM

SHANGHAI, Jun. 14 (SMM) -- Approved by the State Council, coking coal futures will be launched on the Dalian Commodity Exchange by the end of June. Besides, the launch of government bond futures has been approved by the State Council, with China Securities Regulatory Commission's document expected to issue. The launch of government bond futures should be later than coking coal futures.

DCE launched coke future contract on April 15th last year. Coking coal is upstream raw material of coke, and the two resources are closely related to each other. China is the large coke producer and consumer in the world, with the largest demand for coking coal. Demand for coking coal was close to 600 million mt in 2011. In this context, it is not enough only having coke futures, combined with growing domestic demand for high grade coking coal, so it is reasonable to launch coking coal futures.

According to the preliminary plan by DCE, regarding coking coal futures, trading unit is 60/lot, and the minimum fluctuation is RMB 1/mt, with the daily trading limit 4% of the settlement price of the previous trading day; the 10th day of the contract month is the last trading day, and the last delivery date is the second trading day following the last trading day; the minimum trade margin is 5% of contract value. Coking coal futures will be delivered at both port warehouses and factories in inland producing regions, with delivery warehouse set at Jingtang, Tianjin, Rizhao, Qingdao and Lianyungang port. But the plant warehouses have not been decided yet.

Steelease sources report that coking coal should be stored no longer than three months due to quality volatility, otherwise cementation index will be affected. In this context, DCE set the effective period of warehouse warrants at one month in case of quality change.

What positive affects will the launch of coking coal futures contract have on domestic coking coal industry?

Domestic coking enterprises have been operating with low profit margins, with looses reported by some enterprises. That is because downstream steel prices are affected by domestic and international economic recession and due to firm coking coal prices at high level. The launch of coking coal futures contract will provide a safe-haven for the coking industry and help improve the status quo of the industry.

Besides, supply and demand are major factors affecting coking coal prices due to early marketization, but as coking coal prices changes significantly by regions, a uniformed price standard can be barely made. In the recent three years, domestic coking coal prices have been fluctuating larger than 10%, with the volatility reaching 22.3% in 2009, and 17.8% in 2010, and 12.5% in 2011. The launch of coking coal futures is favorable for the formation of uniformed coking coal prices.