Coking coal futures approved

The China Securities Regulatory Commission (CSRC) has authorized the launch of coking coal futures in a move to provide market participants with more tools to hedge against price adjustments, the commission announced Tuesday.

As of now, the unit size of the contract is likely to be set at 60 tons, with the minimum margin deposit expected to stand at 5 percent and daily movements to be capped at 4 percent above or below the previous day's close, according to a tentative draft from the Dalian Commodity Exchange (DCE), one of the three futures exchanges in China.

An experimental coking coal futures trading program could start as soon as March 22 for a limited number of investors and traders, according to a report Wednesday in the 21st Century Business Herald. These details were not confirmed by the DCE when reached by the Global Times.

The contract marks the latest step by market authorities to provide more derivative options to coal traders and steel mills - the two main buyers of coking coal - hoping to minimize their exposure to the frequent fluctuations commonly seen in the commodity's price, according to the CSRC. In April 2011, the DCE introduced futures contracts for metallurgical coke, a product mostly made from coking coal, and announced plans to introduce coking coal futures at a later date.

Liu Yiqing, a steel analyst from Jinshi Futures, told the Global Times that he was optimistic on coking coal futures as an investment vehicle and a tool to give China more sway in pricing.

"The new financial product will be popular among investors. For one thing, the entry threshold for investment is low and also the price for coking coal has a lot of room to move because it is a raw material," Liu explained, adding that investors may be able to purchase a contract for as little as 6,000 yuan ($965).

At the same time, as one of the world's few financial products tied to coking coal, this contract is expected to put pressure on international spot prices for the commodity, according to Liu.