Chinese coking coal and coke futures extended gains on Monday after capacity cuts in the country hit production, with a severe supply shortage expected to continue in the coming months.
As part of its supply-side reform, China has vowed to slash overcapacity in the coal sector that has dragged miners into severe losses over the last few years.
But measures this year such as shutting down unqualified mines and cutting working days at mines have unexpectedly fueled an extreme shortage of coal supply, in turn raising prices for steel.
“Coking coal supply is extremely short and higher prices have driven steel prices. Steel demand is pretty firm at the moment, so I don’t expect steel prices to fall in the near future,” said Li Wenjing, an analyst with Industrial Futures in Shanghai.
The most active coking coal futures on the Dalian Commodity Exchange had climbed 2.6 percent to 1,243.5 yuan ($183.67) a tonne by close. It earlier touched a session high of 1,258.5 yuan a tonne, the highest since the bourse launched the contract one year ago.
The Dalian coking coal futures have surged 46 percent since the end of August.
Dalian coke futures surged 3.8 percent to close at 1,595.5 yuan a tonne. It earlier hit a high of 1,602 yuan a tonne, the highest since Dec. 2013. Coke has risen 31 percent since the end of August.
Iron ore futures gained 3.2 percent to 454 yuan a tonne, after touching a session high of 455 yuan a tonne, its highest in about two months.
The most active rebar futures on the Shanghai Futures Exchange rose 1.1 percent to 2,491 yuan a tonne.
Iron ore for delivery to China’s Tianjin port .IO62-CNI=SI stood steady at $58.40 a tonne on Friday from the previous session, according to data from The Steel Index.
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