Chinese coking coal futures surged more than 5 percent on Thursday to their highest since mid-September, supported by tighter supply amid Beijing's environmental clampdown, with fellow steelmaking commodity iron ore also rallying. China's overall coal imports dropped 21 percent in October from the previous month as the government moves to replace coal with cleaner fuel in the northern part of the country to meet tough air quality targets.
Domestic coking coal supply remains under pressure because "there are a lot of interruptions with the government implementing stricter environmental rules this winter," said a Shanghai-based trader. "Coking coal supply is still tight, that's why coking coal and coke prices are all rising," the trader said. Coke, used in steelmaking, is produced from coking coal.
The most-traded coking coal for January delivery on the Dalian Commodity Exchange rose as much as 5.5 percent to 1,332 yuan ($202) a tonne, its highest since September 15. It closed up 2.9 percent at 1,299 yuan. Coke initially touched a two-month peak of 2,032 yuan per tonne, before trimming gains to end at 1,969 yuan, up 0.7 percent. Iron ore prices followed coal futures higher. The most-traded May iron ore on the Dalian exchange marked a 10-week high of 513.50 yuan a tonne and closed up 3.1 percent at 507.50 yuan.
Steel production in northern China remains constrained by limits imposed by Beijing as part of its fight against smog, restrictions that are expected to be in place through March. "However, that will be partially offset by rising output from steel mills in southern China, who are not impacted by environmental protection measures," Commonwealth Bank of Australia analyst Vivek Dhar said in a note.
"Incentives to increase output are strong for these steel mills due to high margins. Iron ore port stocks show this behaviour, with stockpiles in northern ports rising, while falling in southern ports." Iron ore for delivery to China's Qingdao port climbed 4.3 percent to $65.17 a tonne on Wednesday, its strongest level since September 21, according to Metal Bulletin. That was the biggest single-day spike in over two weeks for the spot benchmark, which has rebounded more than 11 percent from end-October. Rebar on the Shanghai Futures Exchange rose 0.8 percent to 3,826 yuan a tonne on Thursday.
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