- Coke options listed on the DCE on 2 September
- Steelmakers diversify hedging tools amidst price volatility
With China officially launching coke option trading, the means to manage price volatility risks in the steel raw materials market have been further expanded. The introduction of options for coke, following coking coal and iron ore, completes the ‘futures + options’ risk management system for the Chinese steel raw materials market.
The Dalian Commodity Exchange officially listed and began trading coke options on 2 September. China is the world’s largest producer and consumer of coke, with annual production exceeding 500 mnt, accounting for more than 67% of global production.
Coke is a key raw material connecting coking coal and steel production, directly impacting the production costs of steel companies. Recently in China, coke price volatility has increased due to a combination of coal supply disruptions and sluggish steel demand, raising the need for price risk management among steel companies, coke manufacturers, and distributors.
With the introduction of coke options, related companies can now employ various hedging strategies tailored to market conditions by utilising options in addition to existing coke futures.
In particular, options allow for a form of risk management distinct from futures, as they limit price volatility risk to a certain level while enabling the securing of profits when market prices move favourably.
The market also showed stability on the first day of listing. According to the Dalian Commodity Exchange, the trading volume of coke options on the first day was 855 contracts, and the open interest was 414 contracts. The trading volume was 0.88% of the trading volume of the underlying asset, coke futures, and the open interest was 0.49%.
The Dalian Commodity Exchange has been operating a market for coke since listing coke futures in 2011. With the listing of coke options, all three major raw materials of China’s steel industry — coking coal, coke, and iron ore — now have futures and options available.
The market anticipates that the introduction of coke options will enhance the precision of price risk management for steelmakers and raw material suppliers, while simultaneously strengthening the price discovery function of the raw material market. In particular, given the growing impact of raw material price fluctuations on steelmakers’ profitability, the utilisation of hedging strategies combining futures and options is expected to gradually increase.
Note: The article is published as part of a content sharing agreement between SteelDaily and BigMint.
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