Chinese coking coal futures rose on Friday as production cuts have been less than expected at steel plants, which is supporting demand for steel making raw materials. Physical prices for coking coal in China's biggest coal mining province of Shanxi were at 1400 yuan per tonne on Friday, according to two analysts. That is about 300 yuan ($45.30) per tonne higher that futures prices.
Steel mills across China, particularly in the country's biggest steel producing city of Tangshan, were expected to begin cutting production to meet air pollution reduction targets. However, Tangshan has ordered different levels of capacity cuts leading to speculation that the output may not be curtailed as much as expected. The unexpected physical demand for coking coal and iron ore has boosted futures buying by investors expecting the gap between futures and physical prices to close as well as to buy in on the higher consumption.
"Mills haven't started production cuts as much as what we expected earlier, so some traders expected coking coal spot prices won't fall too much," said a commodity funds trader in Shanghai who asked not to be identified. The most-traded coking coal futures on the Dalian Commodity Exchange rose 1.7 percent to 1,130 yuan($170.65)($172.27) a tonne by close.
Chinese steelmakers have little financial incentive to shut their plants because profit margins are exceeding 1,000 yuan a tonne, a level that was unseen over the past decade. Margins have improved as the government shut plant to cut overcapacity and to curb environmental pollution. Dalian coke futures edged up 0.2 percent to 1,729 yuan a tonne and iron ore futures rose for a third day, gaining 0.57 percent to 439.5 yuan. The most active steel rebar contract on the Shanghai Futures Exchange edged down 0.05 percent to 3,656 yuan. Iron ore for delivery to China's Qingdao port edged up 0.7 percent to $59.79 a tonne on Thursday, according to Metal Bulletin.
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