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China coking coal futures rally drives restocking

18 Aug 2017, 4.14 pm GMT

China coking coal futures rally drives restocking

Singapore, 18 August (Argus) — Coking coal futures prices on China's Dalian Commodity Exchange (DCE) rose to the highest level this year, triggering a fresh wave of restocking by Chinese steelmakers ahead of peak seasonal demand in September.

The strength in futures prices has come in an otherwise quiet spot coking coal market. Some steel mills began buying cargoes yesterday, after initially having complained that prices were too high.

A Chinese steel mill bought a September-loading Panamax-sized cargo of German Creek for $198.50/t cfr China. A Panamax cargo of Peak Downs North for loading in the same month was sold to another steel mill at $196.50/t cfr China.

These levels are about $10/t higher than the price at which a premium low-volatile cargo was sold on a cfr basis only last week.

The most actively traded January coking coal futures contract on the DCE rose to 1,488.5 yuan/t today, the highest level this year.

"The big jump we saw in the futures market yesterday and today really was the result of a combination of factors," a China-based Australian supplier said. "The fundamentals in coke and coking coal are still firm, while restrictions on gasoline-powered trucks going to Jingtang port in Hebei are fueling worries about how stable domestic supply will be in the future, resulting in a spike in immediate demand."

Mining accidents in Shanxi earlier this month have prompted the provincial government to close more than 50 coal mines as a safety precaution. A festival in Inner Mongolia this month temporarily disrupted production and further tightened domestic supply.

The rally has followed bullish sentiment in China's steel sector, where rebar profit margins have remained above Yn1,000/t for months. Steel rebar futures on the DCE have risen towards Yn4,000/t on expectations demand from the country's construction sector will remain strong.

The DCE announced today that it will increase the minimum transaction margin to 12pc of the contract value, in its latest move to curb market speculation.

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