Xinhu Futures

The CSRC Approves Coking Coal Futures

 

In order to implement the Opinions of the State Council on Promoting the Reform, Opening up and Steady Growth of the Capital Markets (Guo Fa [2004] No.3), which states the need to ensure “steady growth of futures markets and gradually introduce commodity futures products that provide commodity producers and consumers with the functions of price discovery and hedging, while risks are strictly controlled”, as well as the “pilot scheme for the trading of coal futures”set out in the recently issued 12th Five-Year Plan on Energy Development, the CSRC has recently approved Dalian Commodity Exchange& #39;s (hereinafter referred to as DCE) listing coking coal futures after it launched the trading of coke futures in 2011 so as to further expand the range of futures products in the industrial chain of coal, meet the actual need of commodity companies and lay the groundwork for the listing of more coal futures products with a view to better serving the development of the real economy. 

 
Based on its purposes, coal can roughly be divided into thermal coal and coal for coking, with the former mainly used for power generation and heating and the latter primarily used in coal-to-chemicals sectors such as coke production. At present, the coal for coking are mainly found in North and East China with a verified reserve of 280.4 billion tons, accounting for 26.6% of China& #39;s total coal reserve. In the coal resources of China, coking coal is rare and of high quality with a reserve of 65.9 billion tons, accounting for 23.5% of coal for coking, mainly found in Shanxi, Heilongjiang and Guizhou province. In 2010, China’s production of coal for coking stood at 1.21 billion tons, making up 37.3% of the total coal output; of which coking coal output reached 258 million tons, or 21.3% of coal for coking. 

 
Affected by factors such as economic growth, state industrial policies and performance of upstream and downstream industries, coal for coking has experienced frequent and sharp fluctuations in price, which has brought an adverse effect on coke and steel production. The launch of coking coal futures will contribute to the further improvement of coking coal price system and coking price formation mechanism and provide a pricing basis for other types of coal for coking, boosting the sound operation of coke, coking coal and steel markets. It will also offer necessary hedging instruments to producers, traders and consumers of coal for coking and improve the stable operation and competitiveness of commodity enterprises. 

 
Among the full range of coal for coking, coking coal is irreplaceable in coke production. Therefore, its price is highly representative and can be regarded as the indicator for the price of coal for coking in general. The highest attention is paid to coking coal price in domestic and international trade of coal for coking. Meanwhile, coking coal is a highly market-oriented product and experiences no price restrictions. With a large number of producers, traders and consumers of coking coal, there is adequate competition in the coking coal market is indicating more competition. Spot commodity transactions are carried out smoothly with a sufficient supply of deliverable commodities. With well-defined national standards in place, it is very easy to conduct an inspection. All these factors make coking coal a reasonable underlying commodity for futures transactions. 
After in-depth research and survey, DCE has already completed the design and rule-making of coking coal futures contracts in accordance with the actual conditions of the spot market and the technical requirements for the design of futures contracts, drafting stricter rules for trading, clearing and delivery and discussing risk control measures such as futures margin, price limit and position limit. The CSRC will guide and urge DCE and futures companies to make proper preparation for the listing of coking coal futures and ensure that coking coal futures are launched successfully and operate safely. 

 

Referred From CSRC.

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