Coking coal futures volume soars as spot market gyrates Traders,...

Coking coal futures volume soars as spot market gyrates

Traders, producers avoid risk amid shifting Chinese mining policies
TOKYO -- Coking coal is lighting up the futures market, trading at higher volumes on the Singapore Exchange in January than it did for all of 2016 combined, as producers and steelmakers seek safety from wildly fluctuating spot prices.
SGX-listed futures in the key steelmaking material saw record trade totaling 870,000 tons in January. Open interest, which reflects the scale of the market, also surpassed 800,000 tons, nearly six times the figure at the beginning of the year.


Trading volumes of coking coal futures have jumped even in China, where speculator money streams into the commodities market. Daily volume on the Dalian Commodity Exchange occasionally topped 50 million tons in November. Individual investors have retreated since January as optimism for high prices fades, but speculator behavior can still sway the market.
Long-term contracts generally decided coking coal prices until recently, as spot contracts rise to prominence. British-Australian mining company BHP Billiton, which holds the greatest share in high-grade coking coal, pushes sales of its product in the spot market, and Chinese and Indian steel mills generally tend to procure materials through spot transactions.
But spot prices have gyrated since autumn, spurring the rise in futures trading. Coal prices jumped last year after China imposed operating restrictions on mines, hitting a five-year high of over $300 per ton in November. The country then relaxed those restrictions and prices slackened, currently standing in the $160-per-ton range.
Unable to predict Beijing's mining policies, market participants are opting for lower-risk futures contracts. These deals guarantee buyers or sellers a price for the future sale of a commodity, useful for nailing down procurement costs or sales revenue regardless of later market fluctuations. BHP Billiton and other major resource providers have gotten on board on the SGX, and major Japanese trading houses are considering dipping their feet in the market as well.
(Nikkei)

http://asia.nikkei.com/Markets/Commodities/Coking-coal-futures-volume-soars-as-spot-market-gyrates