Night session rises nearly 9%: What happened to coking coal futures?

On the night trading session of March 20, the main contract 2605 for coking coal futures surged straight after opening, rising by 8.73%.

Regarding the reasons for the sharp increase in coking coal prices, Liu Huifeng, Chief Researcher of Black Metals at Donghai Futures, stated that from a geopolitical risk perspective, the ongoing escalation of conflicts in the Middle East has heightened market expectations of tight energy supplies. From a fundamental standpoint, this week’s blast furnace daily iron output has significantly rebounded compared to the previous week, with steel mills and coking plants both beginning to replenish inventories. Historically, thermal coal enters a replenishment phase before the summer peak electricity consumption period.

“Recently, spot prices for coking coal have continued to rise, and the futures discount has gradually widened. The basis between the main 2605 contract for coking coal and Mongolian premium coal has recovered from -50.5 yuan/ton in early March to around 11 yuan/ton,” Liu Huifeng said.

Regarding coking coal inventories, Liu Huifeng introduced that overall inventories stand at 26.3051 million tons, which is relatively high compared to the past three years. Notably, the inventory structure has changed somewhat: upstream coal mines currently hold 2.5409 million tons of coking coal, which has decreased for two consecutive weeks, totaling a reduction of 321,700 tons; downstream steel mills and coking plants have seen inventories increase for two consecutive weeks, with a total rise of 538,700 tons.

Jinrui Futures Senior Black Metals Analyst Zhuo Guiqiu told Futures Daily that in the past week, although downstream steel mills, coke plants, and coking factories have replenished inventories, creating positive feedback for the coking coal industry chain, supply has not significantly decreased. Since the Spring Festival, 523 coal mines have increased daily coking coal production for four consecutive weeks, rising from the lowest point of 458,800 tons to 798,100 tons, a cumulative increase of 73%.

“Since last week, market expectations for further increased coal mine production have intensified. If steel demand does not recover as expected, upstream coal mines may return to stockpiling,” Liu Huifeng said.

However, Zhuo Guiqiu reminded that on March 14, the Wari Railway, part of China’s West-to-East Coal Transportation Corridor, underwent a spring maintenance shutdown (lasting 17 days), which may temporarily reduce coal exports from Shanxi, leading to expectations of tightening coking coal supply.

“In addition to fundamental factors, the recent rise in coking coal prices is also supported by energy substitution logic,” Liu Huifeng explained. Iran is an important methanol producer, and with the escalation of conflicts in the Middle East, methanol prices have surged, significantly improving the profit margins for methanol produced from coke oven gas. According to his estimates, since March, profits from by-products of coking (such as tar, crude benzene, methanol, etc.) have risen to around 290 yuan/ton, while total profits for coking enterprises remain around 38 yuan/ton. This indicates that higher profits from by-products can boost coking enterprises’ willingness to operate, thereby increasing demand for coking coal.

When asked whether the upward trend in coking coal prices can continue, Liu Huifeng believes that as long as the Middle East conflict persists, the logic of energy substitution will remain, providing strong support for coking coal prices.

“It’s important to note that although seasonal demand for steel has recently improved, overall demand remains relatively weak. Meanwhile, the volume of Mongolian coal passing customs remains high. After the sharp rise in coking coal futures, risks are gradually increasing, so investors should exercise caution,” Liu Huifeng advised.

Zhuo Guiqiu also believes that based on the black metals supply and demand valuation system, currently iron ore has the highest valuation, while dual-focus on coking coal and finished steel is neutral, with a slight undervaluation of finished steel. According to balance sheet calculations, if inventory destocking expectations are realized, there is still room for short-term increases in coking coal prices.

(Source: Futures Daily)