China's coke, coking coal futures defy global market rout
MANILA: Steelmaking commodity coke surged to a six-week high in China on Tuesday, and steel and iron ore prices rose to their strongest in over a week, as investors defied a global financial selloff and raised their bets amid supply disruptions.
Steel-related commodities were among a handful that managed to evade the global market rout that followed Wall Street's biggest decline since 2011. Amid inflation worries, oil and copper slid more than 1 percent while Asian equities sank further along with US stock futures.
China's aggressive bid to tackle overcapacity, and its production curbs to fight smog, have helped tighten supply in the world's top steel producer. The efforts fuelled a nearly 50-percent surge in steel prices last year and a spike in profit margins to their strongest in decades.
Prices of steel and its raw materials have remained resilient this year, with winter output curbs in place until March. Transport disruptions due to China's heavy snow have also fuelled a rally in coking coal and coke futures.
"Fundamentally speaking, the steel market is really, really supported," said CRU analyst Richard Lu in Beijing.
"Right now, even if there's some decrease in demand, the winter cuts help keep a relatively tight supply-demand balance."
The firm supply-demand picture helped sustain appetite for ferrous futures despite slumping financial markets in Asia that pushed investors towards safe-haven assets such as gold and the dollar.
China had ordered steel producers across 28 cities to cut output by up to half from November until March in a campaign against air pollution.
"The slump in US stocks was more of a worry over inflation and interest rates, which won't have much impact on commodities here," said Wu Ren, senior manager at Shanghai Xiangguang Metals.
Coke and coking coal futures were Tuesday's outperformers. The most-traded coke contract on the Dalian Commodity Exchange rose as much as 3.1 percent to 2,140 yuan ($340) a tonne, its loftiest since Dec. 25, before closing up 2.1 percent at 2,119.50 yuan. Coke jumped 4.7 percent in Monday's rally.
Coking coal rose 0.9 percent to 1,359 yuan per tonne, adding to Monday's 4.2 percent surge.
"Downstream users are operating with low inventory as there is no sufficient rail capacity to transfer coke and coking coal from producers in northwestern China," said Zhang Min, analyst at Sublime Information.
Some producers have halted output ahead of the week-long Lunar New Year break that starts on February 15, said Zhang.
There were also concerns over disruptions of coking coal supply from major supplier Australia.
"Reports of heavy rain in Queensland have stoked fears of disruptions in the major coal basins in the (Australian) state. For the moment, the disruption looks limited, with rail operator Aurizon saying its Queensland rail network remained open and operating," ANZ analysts said in a note.
Dalian iron ore touched a more than one-week high of 529 yuan a tonne, before trimming gains to end at 521 yuan, up 0.3 percent. Shanghai steel futures hit a nearly two-week peak of 3,998 yuan, before closing nearly flat at 3,943 yuan.
"Most of the mills have already procured enough raw material, so there's very little trading activity going on," said an iron ore trader at the port city of Rizhao, adding that some traders have gone on holiday ahead of Chinese New Year.
"After the holiday, mills should come back to the market and restock, so I expect prices won't go down in one or two weeks after the Spring Festival," he said.