Recently, coking coal futures surged 35% over five consecutive trading days but suffered a heavy blow in Friday's night session, with the main contract closing down 7.76%, leading the decline in the domestic futures night market alongside coke. This capital frenzy ignited by expectations of &#34;anti-involution&#34; policies quickly cooled under the exchange's risk warnings and position limits.
On July 25, Friday, domestic commodity futures almost all closed down in the night session, with coking coal down 7.76%, coke down 7.32%, soda ash down 6.29%, glass down 6.18%, caustic soda down 4.38%, hot-rolled coil and fuel oil down over 2.0%, and iron ore down over 1.0%. Japonica rice, however, closed up 0.03%.
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Since July 21, coking coal futures have continuously hit the daily limit, with the main contract soaring from 709 yuan/ton to a new high of 1259 yuan/ton this year, a cumulative increase of 77.57%. The catalyst for this surge was a &#34;coal mine production inspection&#34; notice circulated on July 22, in which the National Energy Administration required coal mines exceeding announced production capacity to suspend operations for rectification.
Before the sharp drop in Friday's night session, the main coking coal contract had hit the daily limit for five consecutive days until Friday's daytime session. The main coking coal contract closed at 1259 yuan/ton during the daytime session, with a cumulative increase of 49% this month, rebounding nearly 77.6% from the low of around 709 yuan on June 3.
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After the exchange announced trading limits on Friday, trading in the two major varieties noticeably cooled, with total trading volume dropping by over 1.7 million contracts compared to Thursday.
On Friday, the Dalian Commodity Exchange announced that starting from next Tuesday, July 29, it would implement position limits on coking coal futures, stating that non-futures company members or clients could not open more than 500 contracts in a single day on the main contract. The Guangxi Futures Exchange also announced that starting from next Monday, July 28, non-futures company members or clients could not open more than 3000 contracts in a single day on the lithium carbonate futures LC2509 contract.
Subsequently, the trading volume of coking coal and lithium carbonate futures in Friday's night session both saw double-digit declines. The total trading volume of coking coal futures on Friday decreased by 912,000 contracts to 3.169 million contracts, a drop of 22.3%, while the total trading volume of lithium carbonate futures fell by 690,000 contracts to 1.705 million contracts, a decline of 28.8%.
Previously, both the Zhengzhou Commodity Exchange and the Dalian Commodity Exchange issued risk warning letters this week, urging member units to strengthen risk prevention efforts and reminding investors to participate rationally; the Guangxi Futures Exchange adjusted the risk control parameters for multiple varieties, involving price limit ranges, trading margin standards, trading fee standards, and trading limits. With regulatory intervention, the risks of excessive speculation are becoming apparent, and the market's euphoric sentiment is facing a test
<h2>Policy Expectations Ignite a Black Carnival</h2>
The recent surge in coking coal futures is attributed to the concentrated release of expectations surrounding &#34;anti-involution&#34; policies. Following the sixth meeting of the Central Financial Committee on July 1, which proposed &#34;governing low-price disorderly competition among enterprises and promoting the orderly exit of backward production capacity,&#34; industries such as building materials and steel were the first to initiate &#34;anti-involution&#34; trading.
What truly ignited the coal sector was the notice on coal mine production verification issued by the Comprehensive Department of the National Energy Administration. This notice requires verification of coal mines in eight major coal-producing provinces, mandating the suspension and rectification of any coal mine whose monthly raw coal output exceeds 10% of the announced production capacity, and calls for a reduction in coal mine production intensity.
Chen Kaihang, chief of the black team at Zheshang Futures, analyzed that after the policy was released, market confidence increased, bullish sentiment surged, and funds quickly flowed into the market. The capital inflow for coking coal reached 14.289 billion yuan, an increase of 5.185 billion yuan since July 1, with the trading volume of the main contract skyrocketing to 2.883 million lots.
From a fundamental perspective, the production cuts in Shanxi and other regions due to environmental protection and safety supervision factors have not fully recovered, leading to continued supply tightness. Meanwhile, the price increase on the futures market has driven spot replenishment, futures-spot arbitrage entry, and stockpiling behavior by traders, creating a positive feedback loop for price increases.
<h2>Industry Deeply Trapped in &#34;Involution&#34; Dilemma</h2>
There is indeed a necessity for &#34;anti-involution&#34; in the coal industry. Since the beginning of this year, the spot price of coal has continued its downward trend into 2024, with the proportion of coal enterprises reporting losses rising to about 54% by May.
Data from the China Coal Industry Association shows that the spot index price for 5500 kcal thermal coal in the Bohai Rim in July was 623 yuan/ton, a year-on-year decrease of 257 yuan/ton. The total industry profit fell from 1,020.2 billion yuan in 2022 to 762.9 billion yuan in 2023 and is projected to drop to 604.6 billion yuan in 2024.
Listed companies are generally under pressure regarding performance. China Shenhua expects a net profit decline of 13.2% to 20.0% in the first half of the year, Yongtai Energy anticipates a year-on-year net profit drop of 87.39% to 89.91%, and DYEC expects a loss of 820 million yuan. Research reports from CITIC Securities indicate that the net profit decline for tracked coal-listed companies in the second quarter averaged 16%.
Zhang Hong, a member of the Party Committee of the China Coal Industry Association, stated that due to years of coal production growth outpacing consumption growth, a situation of oversupply has accumulated. In the first five months of this year, the total industry profit fell to 126.4 billion yuan, a year-on-year decrease of 50.6%, with the proportion of enterprises reporting losses reaching 53.6%.
<h2>Risks of Over-speculation Emerge</h2>
As market sentiment reaches a frenzy, the risks of over-speculation are accumulating. On July 23, the Dalian Commodity Exchange issued a risk warning letter to its member units, urging them to pay attention to market dynamics and guide rational and compliant trading.
Liu Yuwu, a futures analyst at Guotai Junan, stated that the recent price increase in the coal and coke futures market is largely driven by emotional disturbances. According to estimates from third-party information providers, the overproduction in major coal-producing provinces is relatively limited, with only Xinjiang experiencing overproduction in June.
Hongye Futures believes that after a continuous rise in the futures market, signs of overheating have begun to emerge, with emotional characteristics driven by policies and news being evident. If subsequent policy implementation does not meet expectations or if the pace of production resumption accelerates, it could trigger a phase adjustment
Li Xunlei, Chief Economist of Zhongtai International, stated that the market currently has overly high expectations for &#34;anti-involution,&#34; and the significant rise in prices of certain commodities may be subject to excessive speculation. Analysts from Lange Steel Network pointed out that a large influx of capital has shifted the market from fundamentals to capital games.
<h2>Attention to Policy Rhythm in the Future Market</h2>
Analysts generally believe that in the short term, coal and coke prices will maintain a strong oscillating trend, but the medium to long-term trend depends on marginal changes in supply and demand and the pace of policy implementation.
Zhang Yuan, a senior analyst at the Tianjin branch of Yide Futures, stated that short-term market sentiment is strong, coupled with expectations of inventory reduction, which will keep coking coal futures oscillating strongly. However, the core contradiction in the medium term still lies in marginal changes in supply and demand, requiring continuous tracking of the recovery progress of domestic raw materials and imports.
Chen Xin, a professor at the Shanghai University of Finance and Economics' Dihu Lake Advanced Financial Institute, emphasized that the policy goal should be to avoid large fluctuations in coal prices. After coal companies restore reasonable profitability, administrative controls may be relaxed to avoid excessively increasing costs for mid- and downstream enterprises.
Nanhua Futures pointed out that the skyrocketing prices of basic raw materials such as coal, coke, and steel are not conducive to the stable development of the terminal manufacturing industry, and it is necessary to cautiously assess the downstream's ability to absorb rising raw material prices. As regulatory measures are implemented, the market will reassess the actual impact and sustainability of the &#34;anti-involution&#34; policy

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On Friday night, coking coal fell nearly 7.8%, and coke dropped 7.3%. Coking coal had a daily limit up for five consecutive days, soaring 35% over the five days. On Friday, the Dalian Commodity Exchange and the Guangxi Futures Exchange announced trading limit requirements for coking coal and lithium carbonate futures, respectively. The trading of these two major varieties has significantly cooled down, with their total trading volume decreasing by at least over 20% compared to Thursday

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The five-day surge in coking coal has come to an end! After the exchange intervened, both coking coal futures fell sharply in the night session, with risks accumulating behind the "anti-involution" celebration