Futures exchange CME Group plans to launch next week coking coal options contracts, expanding a range of met coal derivatives available to traders and speculators as spot market references in physical trading expanded this year.
Global industry benchmark quarterly pricing moved to directly price premium hard coking coal off daily spot market indices for the grade in the second quarter. This expanded existing index-linked HCC contract and spot trade in Japan, South Korea, India and the Europe- and Brazil-dominated Atlantic market.
This has led to more interest around futures and options contracts with settlement based on spot index settlements.
CME said regional demand led its New York Mercantile Exchange unit to list the FOB Australia Premium Hard Coking Coal (TSI) Average Price Option contract for trading on CME Globex electronic trading platform and for clearing via CME ClearPort effective for trading on October 23.
"As a result of strong demand from our European and Asian clients, CME is pleased to launch these TSI coking coal options," CME Group Executive Director for Energy Products, Henrik Hasselknippe, said in a statement. "We are excited to re-establish our position in the coking coal market, where these new products will complement CME Group's current offering in thermal coal and other dry bulk products."
The options contract is basis 1,000 mt, with the first listed month to be October 2017.
CME started offering the Premium HCC FOB Australia Platts TSI-based futures contracts for trade October 2, building on prior activity developed in the Platts Premium Low Vol HCC-based futures contract. Both contracts are basis 1,000 mt clips.
The Singapore Exchange has an active futures contract also using Platts TSI's Premium HCC FOB Australia contract, where the clip size is a 10th of the size, at 100 mt.
The SGX in September launched options contracts on the same settlement basis, with no open interest outstanding across the contracts as of Tuesday's close.
Interest on the SGX's coking coal contract has expanded since end-2016, with market sources citing greater usage of spot indices in trade as well as miners' involvement in hedging and market making.
Coking coal has been the most volatile major commodity in the past year, with prices spiking twice so far. The mining industry along with buyers such as steel mills and traders, along with banks serving them, are seeking to utilize the markets increasingly to be able to secure working capital, trade financing and new mine and equipment investment, sources said.
Reduced outright coking coal price volatility may aid the offering of cross-margin offsets and other incentives at the exchanges, which offer iron ore and steel, along with thermal coal.
The quarterly reference HCC contracts agreed in Japan and South Korea and used worldwide have moved pricing formation to use the spot price indices for an average of three months, prior the end of the quarter in question, to determine the price invoiced. This means daily index quotes in June, July and August was used as an average to price Q3.
Iron ore pricing since 2010-11 has used spot prices in China to determine contracts elsewhere, and trade in the iron ore derivatives market has surged, surpassing 1 billion mt in 2015 and expanding further last year.
