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On August 24, at the “2017 China Coal-Coke-Steel Industry Conference (CCIC)” held in Shenzhen, Chen Wei, director of the industrial products business department of Dalian Commodity Exchange (DCE), briefed on the operation of the coal, coke and iron ore futures market and the measures to improve the contract systems of the iron ore and coking coal futures. He said that in order to adapt to the changes in the spot market, DCE will appropriately adjust the delivery quality standards for the coking coal and iron ore futures so as to make the futures prices more representative and stable.
Since the listing and trading, the coking coal, metallurgical coke and iron ore futures have recorded total trading volumes of 14.066 million, 12.2801 million and 861.7491 million contracts (on one side, the same below) respectively, and the correlation between futures and spot prices have remained at 0.99, 0.88 and 0.96 respectively, which are at relatively high levels and represent the benign interactions between the futures and spot prices.
As of July 2017, there were 11,500 and 14,300 corporate clients for the coking coal and metallurgical coke futures respectively, with the average daily transactions accounting for 25% and 22% of the totals respectively and the shares of average daily open interest at 33% and 37% respectively. As of the second quarter of 2017, a total of 14,200 corporate clients and more than 900 clients in related industries participated in the trading of the iron ore futures, with the trading volume and average daily open interest of the corporate clients accounting for 26.64% and 34.69% of the totals respectively.
The delivery of the coking coal, metallurgical coke and iron ore futures has been stable and smooth. As of the 1705 Contract, the delivery volumes of the coking coal and metallurgical coke futures were 1.986 million tonnes and 1.839 million tonnes respectively. The mode was mainly warehouse delivery, and since the beginning of 2017 the domestic coal has become the main force in delivery with the volume accounting for 33% of the total. As of the 1707 Contract, the iron ore totaled a delivery volume of 3.55 million tonnes, of which, the PB fines, sinter feed Carajas and other mainstream ore products accounted for more than 70% of the total; the domestic fines registered a total delivery volume of 110,000 tonnes, with the delivery ore types increasingly enriched.
In order to improve the delivery process, DCE has vigorously advanced the innovation in the delivery systems for the coking coal and metallurgical coke futures, and implemented the port extended factory warehouse system. The first extended factory warehouse was Shanxi Sunlight Coking Group, which produces coke in Shanxi Province, conducts the delivery in Lianyungang, and sets up the credit warehouse receipt system adapting to exiting distribution directions so as to provide convenience for the industrial clients to receive the goods. In addition, DCE will introduce the warehouse receipt-free delivery mode for the coking coal futures in the near future so as to solve the problem of mutability in coking coal quality and the deviations in the second inspection, and at present the plan for the system has been discussed in multiple rounds on the market. Besides, DCE will also research and launch the qualified coking coal supplier system in a bid to improve the delivery quality of coking coal and reduce delivery costs.
It is learnt that under the influence of supply-side structural reform, in the first half of this year, the steel supply was tight, the steel profits rose to historical highs, and the steel mills tended to use high-grade mainstream ore products featuring stable quality and low silicon and aluminum contents, with the price differences between non-mainstream ore products, and mainstream ore products expanded continuously. The sharply increasing price differences between the high and low-grade ore products have made the fixed futures premiums and discounts inadequate to cover the current spot spreads, with the non-mainstream iron ore products entering the iron ore futures delivery process because of the advantage of low prices. As a result of the low liquidity of the non-mainstream ore in the spot market and the poor recognition at the steel mills, the delivery will increase the difficulty for the buying clients in use or sales, which will affect the representativeness of the iron ore futures prices to some extent.
In such a context, DCE carried out detailed statistics analysis for the 380 indicator samples of 19 ore products. With in-depth research and repeated demonstrations, DCE has formulated the adjustment rules for the delivery quality standards of the iron ore futures, and adjusted the permissible ranges of related elements for the standard products with the quality premiums and discounts adequately changed, so as to make the futures prices represent the PB fines and other mainstream ore products in most cases. Moreover, the upper limits of related indicators have been adjusted down and the deduction and penalty has been strengthened for the indicators, so as to limit some non-mainstream ore products entering delivery or increase their delivery costs, to make the delivery more concentrate on mainstream ore products and ensure the representativeness of the futures prices for the prices of the mainstream ore products.
In the initial stage of research and development of the coking coal futures, for the reasons such as restricted research conditions and inadequate basic data, the relatively conservative quality standard scheme was adopted on the coking coal futures. After years of operation, at present we have mastered more accurate indicator data and sufficient delivery inspection data of the mainstream coal products in the market, with the foundation in place for in-depth research of the coking coal indicator system for different sources, coal species and output levels.
According to Chen, the indicators for evaluation of coking coal quality mainly include the ash content, the sulfur content and the CSR intensity. In general, the coking coal with lower ash and sulfur contents and higher CSR intensity is better in quality. According to the comparisons of the indicators between the mainstream spot coking coal and the coking coal in futures delivery, the indicators of ash and sulfur contents of the futures deliveries are slightly higher than those of the physicals, with the CRS intensity of the futures lower than that of the physicals, showing differences in indicators between futures and physicals. After studying the enterprises’ habit in using coal and procurement demands, we found that the enterprises make high demands for the stable and sufficient supply of skeleton coal, as for example, a medium-sized coking plant with a production capacity of 1 million tonnes consumes more than 12,000 tonnes of coking coal in 10 days. According to statistics, the delivery volume of 58% of the coking coal futures deliveries were less than 12,000 tonnes, and it is difficult to meet the daily consumption demands of medium and large-sized coking plants with the futures delivery volume. Therefore, the coking coal futures are more suitable for blended coking coal with ash and sulfur reduction.
After setting the blended coking coal as the standard delivery product, in order to adapt to the habit of the coking enterprises, DCE has designed the delivery quality improvement plan on the basis of the features of the blended coking coal. The plan has adjusted the proportions of the ash and sulfur and the CSR intensity of the delivery standard products, so as to effectively control the coal products with medium and high sulfur contents in delivery and ensure that the futures prices represent the imported blended coal with low sulfur content.
It is estimated that after the implementation of the new quality standards for coking coal delivery, the supply of the coking coal meeting the new standards will reach nearly 60 million tonnes, accounting for about 50% of the total coking coal supply in the delivery area, which will not only ensure sufficient supply available for delivery but also extend the representativeness of the futures prices.
