Coke leads plunge in China steelmaking futures

28 September 2017

Futures prices for Chinese steelmaking raw materials plummeted on Thursday, led by coke, which had its worst day in 15 months, amid bearish indicators for the fourth quarter, when winter limits on steel production are expected to hurt demand.

The Dalian Commodity Exchange’s most-traded coke futures , for January delivery, plunged 6.09 percent to close at 1,875 yuan ($281.30) per tonne for its biggest one-day drop since June 2016.

The coke futures’ closing price was at its lowest since July 17, with the contract having plunged over 23 percent in the past two weeks.

Iron ore for January delivery closed down 3.53 percent on 451 yuan per tonne, its biggest daily dive since May 24. It could have been much worse with the contract losing up to 5 percent by 0625 GMT, before clawing back some ground just ahead of the trading close.

“Iron ore fundamentals are not good,” said Zhao Xiaobo of Sinosteel Futures in Beijing. “Imports will rise in the fourth quarter and the environmental restrictions on steel mills are reducing iron ore demand.”

Coking coal endured a similarly bad session and remains in bear territory. Dalian’s most-traded coking coal contract closed down 3.77 percent at 1,124 yuan per tonne, and has also dived about 23 percent over the last two weeks.

“Coking coal inventory is too high,” a trader said, adding that stock levels were currently at 20 days, above the usual level of 10 days and even the winter norm of 15 days.

Meanwhile, on the Shanghai Futures Exchange, the most-traded construction steel contract closed down 1.04 percent at 3,606 yuan per tonne, recovering from a near 2 percent drop earlier in the session.

China’s steel mills are slashing order books and curbing iron ore purchases as the government forces factories across the north to halve output this winter in Beijing’s intensifying war on smog, executives said in Qingdao this week.

Steel demand is likely to fall in October due to government policy and seasonal factors, analysts at Orient Futures said in a note on Thursday.

The impact of output cuts at Chinese steel mills may not be felt until November, but will be offset by the resumption of production at mills outside northern China which are not subject to environmental restrictions, they added.

Some northern Chinese cities, such as Handan in Hebei province, have said winter restrictions on blast furnaces will take effect from Oct. 1.