Chinese steel makers will soon have a financial tool to hedge some of their production costs with the introduction of coke futures contracts.
Domestic mills supply only a third of their coke needs from their own production, compared with a self-sufficient rate of 85-95 percent for advanced steel companies in developed nations, according to Huang Jin'gan, president of the China Coking Industry Association.
That means Chinese mills have to rely on the spot market for coke which fluctuates a lot. In Shanxi Province, the main coke producing region, spot prices surged to 3,200 yuan (US$488) per ton in the summer of 2008 from around 1,500 yuan at the end of 2007 and again tumbled to 1,300 yuan at the end of 2008, data from the association showed.
Coke is derived from coking coal and is used to produce steel. China is the world's top coke producer and exporter.
China's securities regulator said on Tuesday it has approved coke futures trading on the Dalian Commodity Exchange. Trading may start a month later, sources said.
The association said the new commodity derivative will meet the need for a risk transfer for coking coal, coke and steel makers and traders.
"In the past, coke companies just didn't have any effective hedging tool in the face of fluctuating spot prices," said He Xibin, general manager of Shanxi Antai International Trading Co.
Producers can sell their future production to lock in higher prices, while mills can buy future needs to reduce the risk of price fluctuations.
Also, new lead futures trading will debut Thursday on the Shanghai Futures Exchange. Lead is used in battery.
