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Coking coal futures hit record high as prompt contract sees contango

Highlights

February 2022 rises to $415.75/mt FOB Australia basis

Futures exceed physical index for six sessions

Iron ore market saw prompt futures in contango recently

Coking coal futures on the Singapore Exchange hit all-time record highs Jan. 14, supported by stronger Australian and global prices for the crucial steelmaking commodity around tight coal supplies and recent disruptions to logistics in North America.

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Contracts surged Jan. 14 with prompt February 2022 rebounding to $415.75/mt at the close in Singapore, from $412.75/mt in the previous session, according to Platts assessments. S&P Global Platts started assessing coking coal derivatives in May 2014.

Front-month futures continued to exceed the benchmark S&P Global Platts spot premium HCC FOB Australia index, at a record of $409/mt on Jan. 14, with futures outpacing spot physical index prices for the sixth straight session.

The forward curve has seen more support in front-month contracts, moving into a prompt contango structure from backwardation at the front of the curve earlier this month and in December. In a contango, later-dated prices are higher than prices for prompt loading, or delivery, with the inverse of higher prompt prices seen in a backwardated market.

The Q2 2022 contract was assessed at $330/mt on the day, up from $322.75/mt on Jan. 13.

Flooding in British Columbia, wet weather in Queensland, and winter storms hitting the Appalachians have limited spot supplies of coking coal over the past two months, with signs of continuing strong demand. China has returned to book and inquire around US coking coals for delivery in March and in the second quarter.

At the same time, global demand was supported on stronger steel prices and demand, with environmental pressure on lending to coal projects and financing for the sector said to hit expansions and replacement tons.

The steel raw materials market had been affected by weaker iron and steel production in the fourth quarter from China, with signs of stronger rates and stimulus increasing production in Q1, especially after February. China has suspended coking coal and thermal coal imports from Australia for just over a year, and released some Australian coals at ports to clear customs during Q4, cutting import demand temporarily.

Demand for Canadian, US and Russian coking coal had earlier tightened up Atlantic and Asian markets during lower availability from Australia, as miners adjusted production to meet contracts and BHP conduced maintenance at coal processing plants in the second half of 2021.

The iron ore market saw a prompt contango develop in late November and early December, as prompt futures outpaced 62%-Fe IODEX fines index prices for delivery 14-56 days forward from date of publication.

The rarely seen contango came ahead of a strong rally in physical prices into January with a widening in the 62%-65%-Fe fines spread. Firmer restocking demand and seasonal supply curtailments tightened up the seaborne market, with port stock prices following up since a November low.

On Jan 14. IODEX was assessed at $126.75/dry mt CFR China, just below February futures at $126.80/dmt, based on Platts assessments.

Trading in the iron ore derivatives market took off over the past 10 years, reaching critical mass exceeding physical seaborne trade volume a few years ago.

The Singapore Exchange cleared 192.36 million mt in December in 62% Fe fines futures contracts, up 16.7% on November.

The SGX clears coking coal derivatives basis FOB Australia and CFR China, with trading volume centered on futures contracts with settlement on the Platts TSI Premium HCC FOB Australia assessment. Coking coal futures clearing volumes in December decreased to 424,200 mt, down 50% from November, according to SGX data.

The Dalian Commodity Exchange offers coking coal, met coke and iron ore futures, for China-registered trading entities and members.