In the third quarter of this year, the price of coking coal (1229, -6.00, -0.49%) declined from its high levels; the main contract dropped by about 2% from August to September...
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In the third quarter of this year, the price of coking coal (1229, -6.00, -0.49%) declined from its high levels; the main contract price dropped by about 200 yuan per ton between August and September, representing a decline of 14.66%. Since the fourth quarter, the main contract for coking coal has stopped falling and has been fluctuating within a range of 1,220–1,260 yuan per ton. In the spot market, coal prices at the source regions are likely to stabilize after several rounds of declines, and the impact of cheap imported coal on port coal prices is also diminishing gradually; thus, the bottom of the spot market may be approaching. Slowing growth in production volumes: Data shows that from January to September, the total domestic production of coking coal was 349 million tons, representing a year-on-year increase of 8.18%, with the growth rate showing a slight decline. In September alone, the production of coking coal was 39.24 million tons, a 2.00% decrease on a month-on-month basis; the month-on-month growth rate has remained negative for three consecutive months. This year, as the first year in which the coal supply-side reform shifts from reducing overall production volume to adjusting the structure, the monthly production of coking coal saw a significant increase after operations resumed at the beginning of the year. However, the adjustment of production capacity does not mean a significant increase in output; all major producing areas deliberately controlled the commissioning of new coal mines in the second half of the year, and the monthly production of coking coal began to decline. Since October, major safety accidents in coal mines have occurred successively in various parts of the country. **At the end of October, the Coal Mine Safety Supervision Bureau issued a directive calling for enhanced safety inspections in coal mines and stricter measures to crack down on overproduction, indicating a severe situation regarding coal mine safety production. Furthermore, as the end of the year approaches, some coal mines have largely completed their annual production plans, and ensuring safety has become the main priority for the coal supervision authorities and these mines; it is expected that the supply of coking coal from these production areas will continue to decline before the end of the year. The chart shows the seasonal fluctuations in coking coal production. Import policies are becoming stricter; recently, there have been rumors in the market that domestic coal import policies will be tightened significantly. As of October, a total of 276 million tons of coal were imported during the year, slightly less than last year’s full-year import volume of 281 million tons, but significantly higher than the 251 million tons imported in the first 10 months of last year. If coal import policies become stricter, import quotas will decrease significantly in the next one and a half months. Last year’s import coal data can serve as evidence for this. The coal imports in November and December last year were 19.15 million tons and 10.23 million tons respectively, less than half of the average levels seen in previous periods. From January to September this year, China imported a total of 60.99 million tons of coking coal, representing a year-on-year increase of 20.01%, which is almost equal to the total import volume for the entire previous year. If coal import policies are tightened, the volume of coking coal imported by the end of the year will decrease significantly. Given that the proportion of coking coal imports in total coal imports remains relatively stable from year to year, the already released data on coal imports for October show a significant drop in coking coal imports that month, to 6 million tons, with imports further declining in November and December. Last week, Shandong Port received oral notices from the customs stating that all coal shipments must not be declared, and that declarations made in other locations are strictly restricted; furthermore, all imports of coal across the country will cease to be declared starting from December 1st. In addition, some ports in the south have also banned the customs declaration of coal, allowing only coal intended for power plants that have submitted prior applications to be imported ； Although the ports in the northeast have not received any notifications, customs controls are strict, and only large terminal enterprises are allowed to file customs declarations. Demand exceeds expectations. Since October, the pessimistic outlook among end-users has gradually diminished; there has been an increased pace of inventory reduction for rebar (3556, 21.00, 0.59%), which has led to a slight rise in steel prices. Recently, positive developments have emerged on the macro level, and the resilience of the real estate sector has become evident once again. From January to October, the total investment in real estate development across the country amounted to 10,960.3 billion yuan, representing a year-on-year increase of 10.30%. Meanwhile, from January to October, the area of new housing starts was 185,634 square meters, representing a year-on-year increase of 10.00% on a cumulative basis; in October alone, the increase was 23.23% year-on-year, reaching a new high in recent years and far exceeding market expectations. A recovery in real estate demand will directly drive up steel prices, thereby benefiting the iron and steel industry chain. Since the beginning of this year, aside from the strict production restrictions imposed across Shanxi Province during the Second Youth Games in September, the overall operating rate of coke ovens has remained above 78%. Moreover, the operating rate of large-scale coke ovens was significantly higher than that of small and medium-sized ones, indicating that progress has been made in upgrading the capacity of the coking industry. Benefiting from this, in accordance with the \"Action Plan for Comprehensive Control of Air Pollution in the Fenwei Plain during the Autumn and Winter Periods 2019–2020\", there is greater autonomy in regulating production levels at coking plants that have already undergone environmental upgrades and meet the ultra-low emission standards. With appropriate controls in place to address air pollution, these production limits may be even lower than those in the same period last year. Operational recommendations Based on the above analysis, it is expected that the coking coal 2001 contract will exhibit strong volatility; therefore, it is recommended to go long at lower prices. Specifically, buy long positions on the coking coal 2001 contract, with the entry range set at 1220–1250 yuan per ton, the target range at 1300–1330 yuan per ton, and the stop-loss range at 1180–1200 yuan per ton.
Whose research report is this from, regarding which futures company?
It seems I found it on Xunxun; lately, I feel that the price of coking coal is quite good
I remember that coking coal prices are closely linked to the steel market trends
Yes, coking coal is an essential type of coal for producing metallurgical coke. Coke serves as a vital reducing agent and fuel in the long-process steel manufacturing industry. Without coking coal, there can be no coke; without coke, it is impossible to reduce iron ore into molten iron, and thus steel production cannot take place – meaning no steel will be available either.
In China’s traditional coking coal trade, a pricing approach that combines long-term contract prices with fixed prices is commonly used. Due to shortcomings such as long cycles and a single pricing model, the uncertainty in enterprises’ operations and production increases further. To address this issue, the Dalian Commodity Exchange has actively promoted basis trading in order to provide enterprises with an effective tool for mitigating price risks and stabilizing operating profits. As a fundamental energy source, coking coal is an essential raw material for the steel industry; its demand is closely linked to the macroeconomy, and it plays an important role in the national economy. After experiencing a decade of rapid growth in the coking coal industry, demand has been declining year by year due to factors such as a slowdown in economic growth and adjustments in the energy structure, leading to a drop in coking coal prices. Recently, influenced by various factors, coking coal prices have remained in a pattern of wide fluctuations. In China’s traditional coking coal trade, a pricing approach that combines long-term contract prices with fixed prices is commonly used. Due to shortcomings such as long cycles and a single pricing model, the uncertainty in enterprises’ operations and production increases further. How to ensure stable supply and demand of coking coal and keep price risks under control amid the severe fluctuations in coking coal prices has become an urgent issue in coking coal trading. According to reporters from Futures Daily, in recent years, the DCE has been actively promoting basis trading in order to address the aforementioned issues, with the aim of providing enterprises with an effective tool to hedge against price risks and stabilize their operating profits. Leveraging its solid customer base and extensive experience in serving industrial clients, Galaxy Futures has explored the promotion of a coking coal basis trading model. It has also actively coordinated between Hebei Iron and Steel Group Co., Ltd. (hereinafter referred to as Hebei Iron and Steel Group) and Haiming United Energy Group Co., Ltd. (hereinafter referred to as Haiming Group) to carry out the \"2018 Basis Trading Pilot Project\" under the guidance of the Dalian Commodity Exchange. In this pilot project for basis trade, Haiming Group supplies imported coking coal to Hebei Iron and Steel Group. The procurement company of Hebei Iron and Steel Group signs the coking coal purchase contract on behalf of the group, with it being agreed that Haiming Group shall deliver the goods directly to the steel mills under Hebei Iron and Steel Group, which will be responsible for the settlement. In spot trading, prices are determined with reference to the Platts index and domestic coal mine prices; typically, they are negotiated on a deal-by-deal basis. Due to the pricing model, both buyers and suppliers face the risk of price uncertainty. Given that basis trading is expected to be the pricing trend in the future iron and steel industry, HBIS Group has actively carried out a pilot program on coking coal basis trading with Haiming Group. Basis trading represents an exploration of a new business model for the Haiming Group. Through this pilot project, HBIS Group evaluated the feasibility of coking coal basis trading. Haiming Group has gone from scratch in basis trading, thereby accumulating valuable operational experience. It has been learned that, following numerous discussions between the trading parties, it was decided that Haiming Group would act as the benchmark seller, while HBIS Group would serve as the benchmark buyer for this project. Haiming Group reports the basis, HBIS Group sets the price, and Haiming Group uses the futures market for hedging. For the setting of the basis, the Platts Index and the prices of major domestic coal varieties are used as references. Based on market conditions, Haiming Group anticipates that future futures prices will rise while the basis will weaken. Consequently, it has set the basis at 150 yuan per ton. In August 2018, HBIS Group and Haiming Group officially signed a basis trade contract, stipulating that the price at which the goods would be delivered to the plant would be the market price of the DCE coking coal futures contract for January 2019, plus 150 yuan per ton. Subsequently, Haiming Group established hedging positions in the futures market. In November 2018, Hebei Iron and Steel Group finalized the pricing, Haiming Group closed its hedging positions, and the trading parties completed the transfer of ownership of the goods, thus bringing this pilot project for basis trading to an end. In this pilot program for coking coal basis trading, the final transaction price of imported coking coal was 100 yuan/ton lower than the spot price on the day of pricing. Thanks to the use of basis trading, HBIS Group reduced its procurement costs by 2 million yuan. Through this pilot project, HBIS Group avoided the risk of rising costs caused by increasing coking coal prices, ensured a stable supply of goods, and verified the feasibility of state-owned enterprises participating in coking coal basis trading. Meanwhile, Haiming Group made a profit of nearly 80,000 yuan in the futures market, thereby increasing its revenue while locking in procurement costs. Through this pilot program, enterprises have gained a relatively thorough understanding of the advantages of basis trading and explored new ways to ensure stable operations. Looking at the final pricing, the actual transaction price is significantly lower than the market price, and there are various reasons for this. In terms of spot markets, coking coal supplies are tight, and the prices of imported and domestic coal have risen sharply; driven particularly by the shift from road transport to rail transport, spot prices have continued to climb steadily. In the futures market, after base-price trade contracts were signed, futures prices rose sharply. After November, as the demand for finished products weakened, the prices of raw materials also fell. The futures market reflected these expectations in advance, resulting in a period of divergence between futures and spot prices. HBIS Group chose the right timing for price fixation, capitalizing on the low price points and thereby reducing the cost of coking coal procurement. The successful implementation of this pilot project is attributed to two factors: firstly, HBIS Group and Haiming Group have established a long-term trade partnership, with a certain level of trust between them; as a result, no credit risks arose at any stage of the pilot ； On the other hand, Galaxy Futures played a supporting role during the pilot phase. A relevant official from HBIS Group told reporters that, from a sustainability perspective, this pilot project involves basis trading using imported coal as the underlying asset; the type of coal meets the requirements set by the exchange for coking coal futures. Through the pilot project, both parties gained a thorough understanding of the basis trade process, and the issues that arose during the pilot are also areas that the two sides will focus on addressing in the future. The purpose of basis trading is to shift from absolute price pricing to relative price pricing; in the future, HBIS Group will attempt to apply basis trading to other types of coal as well. “Basis trading is a common form of trade in the international market for bulk raw materials. In industries such as non-ferrous metals and soybean oils, where basis trading is relatively well-developed, the use of the futures market helps to improve the spot pricing system and enhance the efficiency of capital utilization. It also enables companies to avoid the risks associated with sharp price fluctuations, ensuring stable expansion and steady profit growth. ”Yang Qing, general manager of Galaxy Futures, told a reporter from Futures Daily. He said that compared to traditional pricing methods, basis trading based on futures prices has three advantages: first, the open, fair, and transparent futures prices serve as a guarantee for basis trading ； Secondly, coking coal futures contracts have a large size and high liquidity, which creates the conditions for implementing diverse hedging strategies ； Third, it is conducive to risk management across the entire industry. Through basis trading, price risk is transformed into basis risk; whether or not a company participates in the futures market, it can manage this risk and effectively reduce capital costs. For the steel industry, engaging in basis trading in conjunction with the futures market is an essential path toward integrating industry and finance. “Although a single pilot project for basis trading cannot immediately bring the pricing mechanism of the entire industry onto a new track, we believe that great journeys begin with small steps. The coking coal industry has entered a new era of basis trading, and through continuous exploration and refinement, such pilot projects will further strengthen the integration between the futures and spot markets for coking coal. They will also help to fully utilize the pricing and hedging functions of coking coal futures, providing companies in this industry with new approaches for risk management and for using futures instruments to expand their business models. ”Yang Qing said.
Coking companies are actively engaging in hedging to improve quality and efficiency. Regarding the use of buying hedges by coking companies, a representative from a coking enterprise in Shanxi said that before adopting such hedging strategies, these companies need to determine whether they have any exposure to negative inventory levels of coking coal, as well as the scale and duration of that exposure. He gave an example: his company plans to purchase coking coal for use over the next three months—approximately 650,000 tons—with the procurement cycle expected to last three months. Based on the assessment that coal prices tend to rise rather than fall, and considering that the current 1801 contract for coking coal futures is trading at a discount of about 50 yuan per ton compared to port spot prices, they will prioritize purchasing futures inventory, with the hedging ratio dapat be increased to 80%. “After entering into futures hedging, we purchase coking coal in batches on the spot market in accordance with the company’s normal production schedule, while simultaneously closing out our futures positions accordingly. ”said the aforementioned person from the coking industry. In the view of the person in charge of Xuyang Group’s futures department, when using futures instruments for hedging, companies need to have a clear understanding of their role – they must know what to do and what not to do. Hedging is part of a company’s production and operational activities; it should not be viewed as a financial operation or separated from investment and physical business operations. “Furthermore, companies should carry out hedging for relevant commodities in line with their business operations. For example, since our company is mainly engaged in the coke business, we will engage in hedging or arbitrage activities related to coke. The advantage of industrial capital lies in the industry itself—in its familiarity with and accurate judgment of the fundamental conditions of the industry it operates in. ”The aforementioned relevant person in charge of Xuyang Group said. Cao Ying believes that corporate hedging essentially involves using futures instruments to lock in the purchase price or selling price in advance, thereby securing the company’s processing profits (or losses) ahead of time. “Companies that perform hedge operations well generally have smoother profit curves. This shows that through hedging, a company’s operations will not be greatly affected by fluctuations in market prices. This is one of the important paths for modern enterprises to grow and become stronger. ”She said.
The coke market is operating in a stable yet strong manner; some coke producers in Shanxi and Hebei have begun the second round of price increases, leading to an increasing bullish sentiment in the market. The plans for reducing excess coking capacity in five areas including Taiyuan and Changzhi in Shanxi Province have been approved ； The three coking enterprises in Linyi, Shandong province, have an approved production capacity of 4.2 million tons, and will remain under production restrictions for an extended period. Recently, coke manufacturers have seen good orders and shipment volumes; inventory levels remain low, and production is running smoothly. Downstream steel mills are still seeing good profits; some of them are actively seeking supplies, leading to a slight increase in purchases. Coke prices are expected to remain stable or show slight strength in the short term. Technically, the J2001 contract rose before falling; the daily MACD indicator shows that the red momentum bars are narrowing, and there is support at lower levels, suggesting that the short-term trend may be bullish. Trading advice: Buy around 1,860 yuan/ton, with a stop-loss set at 1,830 yuan/ton.
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