* Steam coal launches as 5th most traded contract on bourse
* Offers miners, traders access to hedging tool
* Regulators also may allow trade in crude oil futures
(Recasts, adds analyst comments in paragraphs 6,7)
By Fayen Wong
SHANGHAI, Sept 26 China's first thermal coal
futures contract debuted as one of the most heavily traded
contracts on the Zhengzhou Commodity Exchange on Thursday as
miners, traders and investors were eager to trade it.
Although China is the world's top coal consumer and
producer, its coal derivatives market is relatively undeveloped,
and there is growing demand for hedging tools, particularly
given that domestic coal prices have fallen steeply this year.
The rollout of China's first thermal coal contract will also
give Beijing greater influence over global prices, analysts
said. The move comes as China looks to gradually open up its
financial sector in a drive to make economic growth more
China is the world's top coal consumer and producer and in
2012 churned out 2.74 billion tonnes of thermal coal, which
accounts for nearly 80 percent of its total power output.
Top miners Shenhua Group, China Coal Energy Co
, Inner Mongolia Yitai Coal and coal
traders have all indicated their interest in trading Zhengzhou's
physical delivery-backed contract, sources said earlier this
"The perspective for the coal futures contract is quite
rosy," said one coal analyst in Singapore, who declined to be
named because he was not authorised to speak to the press.
Trading of thermal coal futures could rise to several times
the yearly physically traded volumes of around 3 billion tonnes
as the contract attracts more institutional investors, he added.
The January steam coal contract rose 2.8 percent to
close at 534.4 yuan ($87.32) per tonne, up from a base price set
at 520 yuan. With over 300,000 lots traded, it was the bourse's
fifth-most traded contract for the day.
HEDGE AGAINST VOLATILITY
"We're keen and are learning more about the hedging process.
Steam coal prices have been falling and will stay volatile in
the future, so it's a good idea to start hedging our risk," an
executive from a private coal producer said.
China's coal prices have been steadily declining since
December and are down by 16 percent so far this year due to
overcapacity and slowing economic growth.
Falling prices, which sank to fresh four-year lows of 531
yuan a tonne this week, have pushed many miners into losses and
forced some high-cost mines to cut production.
Only Chinese entities and China-registered wholly
foreign-owned enterprises (WFOE) will be allowed to trade the
Zhengzhou contract, which will be based on coal with a calorific
value of 5,500 kcal/kg and be denominated in yuan.
A source at a foreign bank with a licence to trade on
China's commodities exchanges said the firm planned to trade in
Other large miners and power companies are enthusiastic
about the contract and about learning more ways to hedge, said
Liu Yi, an analyst at Galaxy Futures, but adding that most of
the trading will initially be dominated by retail investors.
A Singapore-based coal market source said the introduction
of coal futures in China could also draw more Chinese players
into the international paper market.
"They seem to be really comfortable with anything that's
done by the Chinese exchanges. Hopefully they can have the same
kind of interest in international swaps," the source said, which
would potentially amplify any market influence gained from the
launch of the new coal contract.
Investors are required to put up a minimum 5 percent of the
value of the new futures contracts. The exchange has set each
lot size at 200 tonnes and circuit breakers at 8 percent above
and below the opening price on a given day.
Regulators are also considering allowing trade in futures
contracts for crude oil, iron alloys and a slew of agricultural
The Zhengzhou Commodity Exchange already has a dozen other
futures contracts including wheat, sugar, methanol and cotton.
($1 = 6.1200 Chinese yuan)
(Additional reporting and writing by Rebekah Kebede in Perth,
Editing by Tom Hogue and Jane Baird)