Forward interest builds in ICI 4 coal derivatives

Interest in the ICI 4 derivatives market continued to build further along the curve, with bids and offers emerging for second-quarter 2020 contracts.

This comes two days after the market traded out to the first quarter of 2020 late, the first trades cleared into next year since the contract launched in February 2018.

Trade in the physical market has been relatively slow so far this week, with fewer transactions being done compared with recent weeks. There is a market view that buyers are waiting for the results of a tender by Chinese state-controlled power utility Huaneng, and further details on pricing, to emerge before committing to purchases.

Huaneng has issued a tender to buy 678,000t of imported coal for delivery to its coastal power plants between late March and the end of April. The tender closes tomorrow at 10:00 Beijing time (02:00 GMT).

The utility is seeking coal that is mostly in a NAR 3,000-4,700 kcal/kg range, with another two higher calorific value (CV) cargoes of NAR 5,500-6,200 kcal/kg. Most of the low-CV material is likely to be from Indonesia, the largest exporter of lower CV material to China, although the utility did not specify origins for the majority of the cargoes.

China's state-controlled utility Yudean possibly awarded a 65,000t cargo of NAR 5,000 kcal/kg Indonesian coal in a tender at $64.50/t fob for loading in April.

Indonesian supplies remain relatively tight because of continuing weather-related issues across parts of Kalimantan and Sumatra. This is encouraging sellers to keep offer prices relatively high, even as bids have started to edge lower.

A May-loading geared supramax GAR 4,200 kcal/kg cargo was being offered at $41/t, although an April-loading supramax cargo of the same coal was also being offered at the lower price of $39.50/t. This compared with an offer as high as $43/t earlier this week for an April-loading shipment. A bid for a May-loading geared supramax cargo of this coal was at $38.50/t, while a May-loading gearless Panamax was bid at $39/t. Argus does not include Panamax shipments in the index for this type of coal.

By comparison, two April-loading GAR 4,200 kcal/kg cargoes traded yesterday at $39-39.35/t, although further details such as sulphur specifications could not immediately be determined.

Trade was also slow in the ICI 4 derivatives market today after a total of 111,000t was cleared on the CME on 11 March. These trades took the total volume of ICI 4 derivatives contracts to have been cleared by the exchange this month to 491,000t, with the total volume since the contract launched last year to just under 2.6mn t.

Interest has been building further along the curve and a number of third and fourth-quarter 2019 trades cleared for the first time last week, with more cleared on the CME so far this week. But this week's first-quarter 2020 trades were the furthest out to date. This was followed by second-quarter 2020 bids and offers emerging today.

March ICI 4 contracts were offered today at $39.90/t, with April offered at $39-39.20/t with Singapore-based brokers. April was bid at $38.40/t. Second-quarter 2019 contracts were bid at $38/t, while first-quarter 2020 contracts were bid at $38.25/t and offered at $41.50/t. Second-quarter 2020 was bid at $38/t and offered at $41.75/t.

A Chinese trading firm in the Australian thermal coal market bid $57/t fob Newcastle for an April-loading Capesize cargo of NAR 5,500 kcal/kg coal, with a shipment with the same specifications offered at $58/t on screen. This was within the range of bids and offers confirmed yesterday. But no trades were confirmed today. Some international trading firms are still staying out of the market as they wait for more clarity on Chinese restrictions on Australian coal.

Spot coal prices in the Chinese domestic market continued to fall on the gradual reopening of closed mines. Offers of NAR 5,500 kcal/kg coal were around 630-635 yuan/t fob north China ports, while bids were between Yn625-628/t.

The Chinese futures market saw the Zhengzhou commodities exchange May contract continue to edge down to close at Yn589.20/t, down by Yn4.60/t from yesterday.