The news this week that CME Group had passed the milestone of 100,000 metric tons of coking coal swaps cleared since we launched the service in August 2011 was a welcome endorsement of the rationale behind the development of this new product – and a tribute to the industry which has embraced the change with such enthusiasm.

For the producers, traders and users of coking coal, the opportunity to manage the price risk inherent in their business and obtain a fixed price provides a welcome enhancement to their ability to secure financing. Many banks and trading houses in turn regard a sound risk-management approach by their customers in the industry as a prerequisite to providing financing and related services.  As a premium product, coking coal’s price dynamics were too far removed from those of thermal coal to allow the use of thermal coal swaps as an effective risk management tool — but dedicated coking coal swaps were recognized as the missing element needed to move toward greater control over price risk.

In the context of the steel industry – for which coking or ‘met’ coal is a key ingredient – a viable mechanism for managing price risk in a volatile global arena has further benefits.  As CME Group has argued while developing its ‘Virtual Steel Mill’ suite of risk-management products, a series of contracts which mirrors price risks across the global steel supply chain can transform price risk for all participants – but to be truly effective, the suite needed not only iron ore and steel-related contracts, but met coal as well.

As participants in the broader ferrous industry begin to recognize the benefits of our global, interconnected approach, the gathering liquidity in our coking coal products will continue to deliver benefits, not only to coal producers and distributors, but to the broader ferrous industry.  At a time when price volatility remains a significant risk, we believe these products will earn their place as an essential component of the financing of steel production.

Harriet Hunnable is the managing director of metals products at CME Group.