Steam coal futures up in ZCE debut

Steam coal futures ended higher Thursday, their first day of trading on China's Zhengzhou Commodity Exchange (ZCE), signaling approval from coal market participants for the new hedging tool.

The most traded contract, for January delivery, gained 2.8 percent to close at 534.4 yuan ($87.32) per ton.

In total, 10 steam coal futures contracts, with base prices starting at 520 yuan and delivery times ranging from December 2013 to September 2014, made their debut on the ZCE, according to the exchange. With over 300,000 lots transacted, steam coal became the fifth most actively traded derivative on the day, according to reports from Reuters.

"Coal prices have been declining steadily since the end of last year and local miners and coal enterprises hope to see the market gain more sway over pricing. These futures can serve as important hedging tools for miners and end-users," Jiang Haihui, a coal futures analyst from?Shanghai Cifco Futures, told the Global Times Thursday.

Last year, authorities dismantled the long-standing coal price negotiation system, whereby the National Development and Reform Commission mediated annual contracts between coal producers and power plants. Yet, given the primacy of coal within China's energy structure, experts say that the government is eager to see prices and deliveries remain relatively stable.

China is the world's largest producer and consumer of coal, producing 3.65 billion tons in 2012, according to official figures. Of this amount, steam coal accounted for 2.74 billion tons, representing just over 75 percent of aggregate production.

Steam coal futures are currently capped by a daily limit of 8 percent on either side of the previous trading day's close. The minimum margin is set at 5 percent of the contract's value.

"For retail investors, the entry threshold is quite low. The potential of China's coal market should make these contracts appealing to a wide range of investors," said Jiang.

In addition to steam coal futures, derivatives for coking coal and coke are traded on the Dalian Commodity Exchange. As Jiang went on to explain, steam coal futures may divert funds away from related contracts, although the expansion of the coal futures market is expected to draw in new investors.