.jpg)
Recently, the consultation draft of coking coal contract and rules of DCE has been sent to market to seek opinions. The head of the industrial product department of DCE said when giving an interview to the press, that the design of coking coal contract meets the requirement of serving spot market and adapting to industrial development, and the simple, practical, and operable quality indicator system conforms to the actual conditions of spot market, follows the laws of futures market and meets the demand for investment.
He said coking coal is a raw material in coke production, and is the source of the coal-coke-steel industrial chain, thus occupying an important position in national economy. DCE selects trading varieties and designs futures contracts, with the aim of serving China’s coal-coke-steel industrial chain. When selecting futures trading objects, it finally chooses coking coal out of multiple coal varieties including coking coal, fat coal, gas coal, lean coal, 1/3 coking coal and gas fat coal, mainly for the reason that coking coal, with a clear definition in the Chinese coal classification and a blending proportion of as high as 50% in coke production, is the most representative and widely recognized variety. Meanwhile, coking coal, with a large reserve and big spot circulation size and a market scale of over RMB 200 billion, is suitable for futures trading, because its price is greatly related to the price of other coal varieties.
According to him, the design of coking coal contract takes complete account of both the independent coking enterprises and the demand for hedging of iron and steel enterprises. Relevant statistics show that at present the capacity of independent coking enterprises accounts for about 62% of China’s total coke capacity, and they, most of which are private enterprises, have a high proportion of independently purchased coking coal in markets and thus have a great demand for hedging against risks. While the affiliated coking enterprises of iron and steel plants usually have stable supplies of coking coal and a high requirement for the quality of coking coal. Therefore, the design of the indicators of coking coal contract quality and corresponding rules and systems should take into consideration the demand of these enterprises to adapt to the trend that large steel plants use coking coal in proportion to cut costs. Meanwhile, the range of substitutes used for delivery should be expanded to meet the demands of both independent coking enterprises and large iron and steel enterprises.
He also said that DCE has made a lot of innovations in building the system of coking coal contract quality standards. Based on the multiple P2P forms and stable purchase supplies in China’s coking coal spot trading, DCE takes into full consideration the characteristics of the system of coking coal spot trading indicators to make coking coal contract adapt to the practice of production and trade as much as possible on the basis of national standards. He pointed out that DCE’s design of the standard products of coking coal contract can meet the minimum requirement for coking coal quality standard. It sets premium for substitute superior to standard products, and this design scheme ensures that over 70% of domestic and imported coking coal is used for delivery.
He explained that the design of coking coal delivery system adopts existing ripe warehouse receipt system, under which warehouse receipts shall be cancelled in the delivery month and the period of validity shall be basically one month so that the quality of coking coal can be ensured to be basically unchanged. The delivery place of coking coal is mainly set in consumption area and collecting and distributing centers, after fully considering the regional characters of China’s coking coal production and consumption and the bottleneck of railway transportation capacity. As for the design of delivery place, given the logistics features that coking coal belongs to bulk commodity and is piled in open places and the logistics pattern of spot production and consumption, DCE sets futures delivery warehouse in Jingtang Port, Tianjin Port, Qingdao Port, Rizhao Port and Liangyungang Port along the coast of the Yellow Sea and Bohai Sea, and makes them basis delivery bases. It selects the self-owned coal-washing plants of large coal mines in inland coking coal production areas such as Shanxi as non-basis delivery places to do delivery. DCE sets a premium of RMB 300 per ton, based on the transportation expenses to basis delivery places by trucks.
On the aspect of contract risk control, DCE, based on the spot market data on coking coal, the electronic market data and the trading limit and margin of coke futures, sets the trading limit of coking coal and its margin proportion at 4% and 5% respectively, which may make the daily fluctuations in coking coal contract price within the trading limit as much as possible, and achieve the aim of controlling the risks involved in daily price fluctuations.
He also explained that in order to improve variety sequence DCE’s variety design tries to make coking coal futures compatible with coke and steel futures so that the enterprises in the industrial chain may lock in upstream and downstream risks and investors may do variety arbitrage more easily.
According to him, DCE began to do research on coking coal variety in 2009 and has developed coking coal contract in all respects since April 2011 when coke futures went listed. After thorough investigation and demonstration and soliciting the opinions of all parties, DCE finishes the design of coking coal contract and submits it to CSRC. Its coking coal contract was approved of on March 12, 2013.
