11 Oct 2021

China Coking Coal, Coke Rally on Growing Supply Fears

11 Oct 2021  by   
Dalian coking coal scaled a contract high on Monday while coke futures hit a four-week peak, as a recent flooding in China's top coal-producing Shanxi province intensified supply fears.

Worries about production and transportation of coal from Shanxi added to lingering concerns over an energy crunch that has gripped the world's biggest steel producer and hampered operations of many industries, including coal mining.

The northern province of Shanxi had shut 27 coal mines last week as heavy rain caused flooding.

Coking coal's most-active January contract on China's Dalian Commodity Exchange rose as much as 5.4% to 3,380 yuan ($525.08) a tonne. Coke advanced 3.9% to 3,675 yuan a tonne, its strongest since Sept. 10.

"The main coke production areas in the country are still facing varying degrees of production restrictions," Sinosteel Futures analysts said in a note. "The utilisation rate is low, and the increase in coke supply is limited."

Coke, the processed form of coking or metallurgical coal, is the primary reducing agent of iron ore, the main steelmaking ingredient.

Dalian iron ore jumped 4.7% to 784.50 yuan a tonne, its loftiest since Sept. 6, while the benchmark contract on the Singapore Exchange climbed 7% to $130.85 a tonne.

Spot iron ore has also been supported since Chinese traders returned and mills resumed operations on Friday after the Golden Week holidays.

"Steel rebar import demand is expected to be relatively robust given significant steel production curbs through the next two quarters," said Atilla Widnell, managing director at Singapore-based Navigate Commodities.

Rebar on the Shanghai Futures Exchange SRBcv1 rose 0.8%, while hot-rolled coil gained 0.3%. Stainless steel slipped 0.6%.

"Any impact or perceived impact on steel production (of limited coal and coke supplies) may result in steel rebar futures climbing higher," Widnell said.


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