Activity rises in ICI4 coal derivatives market

Activity increased sharply in the ICI4 thermal coal derivatives market today, with a total of 70,000t trading and clearing on the CME.

Early in the trading day, a block of 20,000t of December contracts traded at $35.90/t, while a 20,000t block of November contracts sold at the lower price of $34.75/t.

A total of 15,000t of November contracts traded at $34.75/t later in the Asia-Pacific trading day, while several December trades amounting to 15,000t were secured at $34.60/t and $35.90/t.

Today's trades mean that a total of just under 1.6mn t has been cleared by the CME since the contract launched in February, after 265,000t cleared in October, the highest yet for a single month. A total of 260,000t traded in September, which was previously the highest monthly level.

Open interest in the contract stood at 210,000t as of late yesterday. This was down from 320,000t late last month but up sharply compared with 190,000t on 15 October.

Trade in the GAR 4,200 kcal/kg physical market was also brisk today, as sellers continued to try and exit positions amid an increasingly weak price outlook. This is leading to a sense of oversupply in the market at a time when demand from main buyers China and India is also relatively weak. But a view is starting to emerge that the market may now be nearing a floor following the recent steep fall in prices. Fob prices of the actively traded GAR 4,200 kcal/kg grade of Indonesian coal have fallen by around 25pc since mid-June and were last assessed by Argus at $35.51/t on 2 November, which was $1.53/t lower than the previous week and the lowest since September 2016.

A series of deals involving GAR 4,200 kcal/kg trades emerged today, with November-loading Panamax cargoes traded at $34.50/t. Panamax trades are not captured in the Argus GAR 4,200 index, which only assesses geared supramax cargoes for this type of coal, while November-loading cargoes also fall outside the current 60-day December and January assessment window. A December-loading geared supramax cargo of the same coal traded at $34.25/t, with a November-loading shipment trading at the slightly lower price of $34/t. Other trades involving November-loading supramaxes of slightly lower quality product were done at the lower price of $33/t. Another November-loading Panamax trade was done at $36/t, although the cargo had especially low sulphur levels and was possibly able to command a premium.

The GAR 5,000 kcal/kg market saw November-loading Panamax cargoes being offered at $50-50.50/t to China. Firm bids were scarce, although indications from Chinese buyers were at around $48.50-49/t. Offers to Indian buyers were lower than to Chinese buyers.

But a Panamax of slightly higher quality GAR 5,100 coal with 1.2pc sulphur was bid earlier this week at $52.25/t for end-November loading with an offer at $54.25/t.

The view that the market could start to stabilise soon is being fuelled by a sense that Chinese demand could start to increase with the onset of lower temperatures in parts of the country. This has helped to stabilise domestic coal prices following two consecutive weeks of falls, with offers for NAR 5,500 kcal/kg product at 655-660/t yuan on a fob north China ports basis today, although bids from utilities were no higher than Yn650/t. In China's futures market, the Zhengzhou commodity exchange's January contract closed at Yn623.40/t today, up by Yn3.60/t from yesterday.

The Australian market saw a screen trade involving a January-loading 50,000t cargo of NAR 6,000 kcal/kg product traded at $106.50/t on a fob Newcastle basis today. A fob Newcastle cargo of 25,000t for January loading was also sold on screen yesterday at $108.10/t. Two screen trades involving this type of coal were done yesterday for December loading, with 75,000t sold at $99/t and 25,000t sold at $103.25/t, both on a fob Newcastle basis. Only cargoes of 50,000t and above are considered large enough to be included in the Argus index.