ICI4 coal derivatives open interest hits new high

Open interest in the ICI4 coal derivatives market, which clears on the CME, has reached an all-time high since its launch in February, and more trades emerged today involving first-quarter 2019 contracts.

Open interest has been rising in recent weeks and reached 320,000t yesterday. This was up from 290,000t on 25 October and sharply higher than 190,000t on 15 October.

A total of 40,000t of ICI 4 derivatives contracts also traded today, comprising 30,000t of first-quarter 2019 contracts and another 10,000t block of November contracts. Today's trades means 265,000t of ICI4 contracts have traded in October, the highest yet for a single month.

Today's transactions for first-quarter 2019 ICI4 derivatives followed the conclusion yesterday of the first trades extending forward into this period. A total of 30,000t was brokered today by Singapore-based Evolution, including 10,000t each for January, February and March, at $37/t. This was down from yesterday's first-quarter trades that were concluded at $38/t. Today's 10,000t block of November contracts traded at $35/t.

Today's trades mean a total of 70,000t of ICI4 derivatives contracts have traded so far this week. This takes the total volume traded since the contract launched to over 1.5mn t, after 260,000t traded in September, which was previously the highest for a single month.

Physical market slow

The Indonesian physical market remains sluggish, despite the recent increase in activity in the ICI4 derivatives market. Chinese demand continues to be dampened by import restrictions at ports, while Indian buyers are keeping out of the market amid expectations prices could fall further through November. Prices for December-loading cargoes could begin to stabilise if China's import restrictions for this year are relaxed for 2019, some market participants said, although the immediate price outlook remains bearish.

The weak price outlook for November-loading physical cargoes is encouraging sellers to try to clear cargoes quickly. Offers and bids have declined this week as a result.

In the actively-traded GAR 4,200 kcal/kg (NAR 3,800 kcal/kg) market, a deal involving a November-loading geared supramax cargo was close to being finalised at $36/t. Deals for November-loading supramax shipments of this coal were done at $36.50-37/t last week. A bid for this type of coal and cargo size was heard at $35.50/t today. By comparison, offers for November-loading geared supramax GAR 4,200 kcal/kg cargoes were at $37.50/t early last week, with bids at $37/t. A larger gearless Panamax cargo of the same coal was close to being finalised at $36.50/t, below where offer levels were heard yesterday at $37/t. Argus does not capture trades involving Panamax shipments for this type of coal.

Argus last assessed GAR 4,200 kcal/kg prices at $37.04/t on 26 October, down by $1.05/t from the previous week and the lowest since early June 2017.

Chinese domestic prices are also coming under pressure and some traders have started to offer NAR 5,500 kcal/kg coal at 645 yuan/t fob northern China ports, although other offers were at Yn650/t. Argus assessed spot NAR 5,500 kcal/kg prices at Yn653.75/t fob Qinhuangdao on 26 October, down by Yn16.25/t from the previous week. In dollar terms, the price assessment fell by $2.64/t to $93.77/t.

In China's futures market, the Zhengzhou Commodity Exchange's January contract closed at Yn632.2/t today, down by Yn7.6/t from yesterday.

In the Australian market, an 85,000t December-loading cargo of NAR 5,500 kcal/kg coal sold today at $64.50/t on a fob Newcastle basis. A deal involving a December-loading 90,000t fob Newcastle NAR 5,500 kcal/kg cargo was done yesterday at $65.25/t. By comparison, three fob Newcastle NAR 5,500 kcal/kg December-loading cargoes were sold last week, underlining buying interest for December-loading high-ash coal over prompter November material. Last week's cargoes were sold by a producer in a relatively tight range of $64.30-65.00/t.

In the high calorific value Australian market, a December-loading 75,000t NAR 6,000 kcal/kg cargo traded on screen at $102.25/t today, while a smaller 25,000t parcel traded earlier in the day at $107.50/t.