As 2016 is drawing to a close, it has been an extraordinary year for the coal, coke, and steel industries. Let’s first take a look at some of the major events that have unfolded in the coking coal market.

　　1. Jiaoshi prices have surged.

　　Speaking of major developments in the coking coal industry, this year’s robust market conditions are definitely worth noting. According to statistics from Qingdao Bulk Commodity Exchange, in 2016, coking coal prices in Shanxi—the region that serves as the main production base—rose by as much as 258%, while in Hebei the increase reached 215%, and in Shandong it climbed by 216%. Such substantial price hikes have brought coking coal prices close to their 2008 levels. As of now, mainstream prices across various regions stand as follows: in Shanxi, the price for Grade-2 coking coal on the market ranges from 1,850 to 1,900 yuan per ton; in the Handan-Xingtai area of Hebei, Grade-2 coking coal is trading at 1,880 to 1,920 yuan per ton; in Tangshan, the delivered price for Grade-1 coking coal is between 2,080 and 2,120 yuan per ton; and in Shandong, Grade-2 coking coal is being traded at 2,050 to 2,100 yuan per ton. In addition to the sharp price increases in major producing regions, large steel mills have also seen significant price hikes. For instance, Nippon Steel has cumulatively raised its prices by 1,520 yuan per ton, while Hebei Iron and Steel has increased its prices by a cumulative 1,530 yuan per ton.

　　2. The Great Battle to Reduce Overcapacity

　　In the coal, coke, and steel industries, capacity reduction is undoubtedly the top priority. In February of this year, the State Council issued Document No. 6 and Document No. 7, setting quantitative targets for capacity reduction in the steel and coal sectors during the 13th Five-Year Plan period: over a five-year span, crude steel capacity will be further reduced by 100 million to 150 million tons; and over a three- to five-year period, roughly 500 million tons of coal capacity will be phased out, with an additional 500 million tons undergoing restructuring and downsizing. On December 17, Xu Shaoshi, Director of the National Development and Reform Commission, stated at the National Conference on Development and Reform that the annual targets of reducing steel production by 45 million tons and coal production by 250 million tons had both been exceeded. Although capacity reduction hasn't directly hit the coking coal market, the coking industry has nonetheless benefited significantly from the broader efforts to reduce capacity in the coal and steel sectors. As coal and steel enterprises have ramped up their capacity-reduction efforts—especially following the implementation of the 276-day production restriction policy—domestic coal output has fallen by 10%, leading to a sustained upward trend in coal prices. The steel market has also seen improvements due to the impact of capacity reduction. As a key intermediate link between coal and steel, the coking coal industry has experienced a sharp decline in upstream production, leaving the coking coal sector in an awkward position of "having no raw materials to cook with." Meanwhile, downstream steel producers, facing compressed capacity and rising prices, have become increasingly eager to procure coking coal. Under these circumstances—tight upstream resources coupled with robust downstream demand—coking coal prices have surged dramatically.

　　3. Freight rates increased

　　The new freight policy, which took effect on September 21, 2016, also fueled the sharp rise in coking coal and coke prices. Just as the upward trend in coke prices was about to intensify, the overloading restrictions were introduced, causing the transportation cycle for coke goods to lengthen and driving up transportation costs. As a result, the overall supply of coke became even more scarce, making it increasingly difficult for steel mills to procure coke. Given that downstream steel demand for coke remains strong, the increased transportation costs have driven up the cost of coke itself. Consequently, steel mills have been compelled to raise their purchase prices for coke, making the subsequent increase in coke prices entirely justified.

　　4. Continuous production restrictions and shutdowns

　　From the beginning to the end of this year, one after another production-limiting policy has been introduced. The Hebei region has been leading the way in implementing these measures, causing many people to mistakenly believe that the production restrictions apply only to Hebei, not to the entire country.

　　(1) On March 15, 2016, the Tangshan region issued the “Air Quality Assurance Plan for Major Events such as the 2016 Tangshan World Horticultural Exposition.” The document stated that during key control periods, Tangshan would implement mandatory emission reduction measures. These measures include halting production, conducting maintenance or reducing production capacity, using low-sulfur, high-quality coal, and strengthening the operation and management of pollution control facilities to achieve emission reductions.

　　(2) From 00:00 on May 27 to 24:00 on May 31, 2016, enhanced air quality measures were implemented, and the coking time for coke plants was extended to 48 hours.

　　(3) From 0:00 on June 8 to 24:00 on June 19, 2016: 1) All open-pit mines across the region shall cease all production activities; 2) All construction sites shall halt all construction operations; 3) Concrete mixing stations shall completely suspend production; cement grinding stations shall fully shut down; steel rolling and casting (forging) enterprises using coal-fired kilns shall all cease operations; and all production processes generating VOCs shall be completely halted.

　　(4) On July 11, 2016, the General Office of the Tangshan Municipal Government issued the “Strengthened Measures for Improving Ambient Air Quality in Tangshan City for July” (hereinafter referred to as the “Measures”). From July 12 to July 31, these measures will require mining enterprises, construction sites, rolling mills, steel plants, and coking plants throughout the city to implement production restrictions, emission reductions, or shutdowns.

　　(5) From August 16 to 31, 2016, the Tangshan region introduced production restriction measures aimed at improving air quality: sintering production was limited by 30% to 50%, coke oven operations were extended by 36 to 48 hours, and all coal-fired rolling mills were shut down; environmental protection measures in the East China region were also stepped up.

　　(6) From 0:00 on September 10 to 24:00 on September 24, 2016, Tangshan City will limit production by 50%. Specifically: 1. Steel enterprises—sintering machines that have not yet completed pollution control measures must reduce their pollutant emissions by 50%; those that have completed the measures may resume normal production; 2. Coking enterprises—coking operations that have not yet fulfilled their pollution control tasks must extend their coking cycle to 48 hours; those that have completed the tasks may resume normal production.

　　(7) Starting at 3:00 p.m. on November 4, 2016, all steel enterprises in Tangshan will halt sintering operations, and coking plants will extend their coke-quenching time to 48 hours. Starting at 6:00 p.m., vehicles with five or more axles will be prohibited from traveling; the lifting of this restriction will be announced separately by the municipal government.

　　(8) Starting from 00:00 on November 8, 2016, all key polluting enterprises in Fengrun District—including those involved in steel, cement, and chemical industries—will implement production restrictions (reductions) or complete shutdowns, reducing atmospheric pollutant emissions by at least 30%. Steel rolling enterprises will halt production daily from 8:00 a.m. to 4:00 p.m.

　　(9) On November 11, Tangshan City in Hebei Province issued another production restriction order. According to the “Urgent Notice from the General Office of the Tangshan Municipal People’s Government on Initiating Emergency Emission Reduction Measures for Severe Pollution Weather,” starting from 3:00 p.m. on November 11, 2016, all coking enterprises in the city shall immediately halt coke production and coal charging, while extending the coke-quenching cycle to 48 hours—provided that safe production is ensured. All steel enterprises in the city shall suspend sintering machine operations and shut down blast furnaces for焖炉 (menglu—thermal soaking). All cement plants (including clinker production lines and cement mills), rolling mills, foundries, and glass manufacturers in the city shall halt production. Furthermore, all production processes at enterprises in the city involving volatile organic compound emissions shall be suspended.

　　(10) On December 6, 2016, the Office of the Leading Group for the Adjustment of the Iron and Steel Industry Structure in Hebei Province issued an “Urgent Notice on Further Investigating and Rectifying Illegally Produced ‘Di Tiao Steel’,” and Tangshan was instructed to clean up medium-frequency furnaces.

　　(11) Starting from 6:00 p.m. on December 18, 2016, all sintering (vertical furnace) facilities in Tangshan City will be shut down, provided that safety is ensured. 50% of blast furnaces will be kept in a “muffled” state (all blast furnaces at a single plant will be muffled). Steel enterprises responsible for providing heating to residents may continue operating, but must ensure that their pollutant emissions meet the prescribed standards.

　　The various production restrictions are primarily targeted at the Hebei region. So, let’s set aside the impact of these restrictions on the coking industry itself and instead focus on why these restrictions are being imposed specifically on Hebei rather than nationwide. First, we should recognize that Hebei is a major steel and coke-producing province, with annual emissions amounting to countless tons. As a result, it bears the brunt of environmental pollution. While people are enthusiastically engaged in production, they’ve unfortunately neglected to pay sufficient attention to environmental protection. The above-mentioned production restriction policies all convey one overarching message: to improve air quality, reduce smog levels, and restore our skies to their former clarity and blue expanse. Regardless of whether companies enjoy high profits and strong performance or face declining profits and worsening efficiency, we sincerely hope that everyone can slow down just a bit. These production restrictions aren’t limited to Hebei—they must apply nationwide as well.

　　5. Peculiarities of the Futures Market

　　Speaking of futures, the Double 11 event of 2016 has undoubtedly become an indelible scar in the hearts of many “futures traders.” On the evening of November 11, after the night session of domestic commodity futures opened, several contracts continued their sharp upward trend, with black-series commodities such as coking coal and iron ore quickly hitting their daily trading limits. Just half an hour later, multiple futures contracts experienced sudden plunges—shifting from their daily limit-up to the limit-down in the blink of an eye. Speaking of the dramatic plunge, we must also mention the earlier surge. Since the beginning of the year, coking coal futures have risen steadily, climbing from 558 yuan per ton to 2,201 yuan per ton just recently. From mid-September to mid-November, coking coal futures not only kept rising but also posted an unprecedented streak of 15 consecutive days of gains, with an overall increase exceeding 34%. The continuous breaking of new highs by coking coal futures can be largely attributed to the effective implementation of supply-side reforms. Due to a supply contraction that exceeded expectations and a persistently large supply-demand gap, inventories of coking coal and coke have been steadily depleted.

　　Since the beginning of this year, the domestic futures market has been in a bull run lasting over half a year, with cumulative gains reaching substantial levels. However, the accompanying risk of a pullback should not be underestimated. Against the backdrop of capacity reduction and ensuring supply, black commodity products have particularly stood out. While reaping profits, everyone should also exercise moderation. After all, futures trading involves risks, and operations must be conducted with caution.

　　6. The Dalian Commodity Exchange has consecutively adjusted its transaction fees.

　　(1) Starting from the settlement on April 18, 2016, our exchange will adjust the daily price limit for coking coal and coke to 6%, and the minimum margin requirement for trading will be adjusted to 8%.

　　(2) Starting from April 26, 2016, the brokerage fee standard for coking coal and coke futures contracts on the Dalian Commodity Exchange has been adjusted from 0.6 per mille of the transaction amount to 1.8 per mille of the transaction amount.

　　(3) Starting April 27, 2016: The handling fee standard for coke and coking coal products will be adjusted from 1.8 per mille of the transaction amount to 3.6 per mille of the transaction amount.

　　(4) Starting from April 28, 2016, the handling fee standard for coke and coking coal has been adjusted from 3.6 per ten thousand of the transaction amount to 7.2 per ten thousand of the transaction amount.

　　(5) Starting from May 10, the transaction fee standard for coking coal and other similar products will revert to 0.6 per mille of the original transaction amount. For coking coal contracts, the transaction fee standard for same-contract trades involving opening a position first and then closing it on the same day will remain at 7.2 per mille.

　　(6) Starting from the settlement on November 8, the minimum trading margin requirement for coking coal and coke will be raised to 11%, and the daily price limit range will be adjusted to 9%. Starting from the trading session on November 9 (i.e., during the evening trading session on the night of November 8), the non-intraday transaction fee for coking coal and coke will be increased from 0.6 per ten thousand of the transaction amount to 1.2 per ten thousand of the transaction amount, while the intraday transaction fee will remain unchanged at 7.2 per ten thousand of the transaction amount.

　　(7) Starting from the settlement on November 10, 2016, the minimum trading margin requirement was raised to 13%; starting from the settlement on November 11, 2016, the minimum trading margin requirement was further raised to 15%.

　　(8) Starting from the close of trading on November 11, 2016 (from this Friday’s night trading session onward), non-futures company members or clients shall not open more than 1,000 contracts per single variety and per single day for coking coal and coke.

　　Regarding the Dalian Commodity Exchange’s adjustments to coking coal transaction fees, what stands out most is the “three-fold increase” in fees—from an initial rate of 0.6 per thousand to 7.2 per thousand. Later on, the DCE also made adjustments to coking coal transaction fees at different time periods. These repeated fee adjustments are intended to narrow the profit margins for excessively frequent short-term speculative trades, curb overly frequent short-term trading in related commodities, and guard against excessive speculative risks. At the same time, these adjustments aim to avoid disrupting normal non-intraday trading activities, ensure that the futures market continues to fulfill its price-discovery and risk-hedging functions, and guarantee the safe and stable operation of the market.

　　7. Anti-dumping on India’s coking coal imports

　　On November 25, 2016, India’s Ministry of Finance issued a notice announcing that anti-dumping duties would be imposed on coke imports from China and Australia over the next five years. The implementation of this measure indicates that the Indian government intends to use administrative means to weaken the competitiveness of Chinese coke and thereby protect the interests of its own coking industry. Consequently, in the short term, negotiations over the price of coke destined for India may become more difficult due to the enforcement of these anti-dumping duties, leading to a potential reduction in the volume of coke exported to India. However, in the long term, given that India itself does not possess abundant coking coal resources and cannot meet the rapidly growing demand for crude steel and coke, India’s import of coke will remain a rigid demand. As a result, Chinese coke will continue to enjoy certain price advantages.