The last decade has seen the steady growth of iron ore futures on Dalian Commodity Exchange (DCE). Since the iron ore futures was listed on DCE on October 18, 2013, DCE has been aligning its strategy with the actual needs of clients in iron ore industry and supporting them. According to the actual situations in the trends of the spot market, and supply and demand dynamics, DCE has adopted a series of measures such as opening its futures products to overseas traders so as to facilitate the steady operation of its iron ore futures.
In 2018, crude oil futures and iron ore futures in Chinese market were successfully introduced to overseas traders, marking a significant step for the opening of China's futures market to international investors. Notably, five years after its listing on DCE, iron ore futures became the first futures product that has been listed in China’s domestic market and has opened its trading to overseas investors, thus helping expand China's influence in the global iron ore trade.
Over the past five years of opening up, iron ore futures has attracted many overseas clients from 28 countries and regions, including Singapore and Australia. The international traders have generated about 3% of daily average trading volume and open interests. In September 2022, the trading of a total of 14 futures and options products including iron ore was opened to qualified foreign investors (QFI).
Following the significant changes in the iron ore spot market after 2020, the supply situation has become increasingly complex. Iron ore futures has played a vital role in performing market functions, such as guiding the formation of spot prices, and providing services of ensuring supply and stabilizing prices. This success cannot have been made possible without DCE's continuous risk management efforts and the "tailoring strategies for products" to optimize contract rules and systems.
First, DCE has consistently improved delivery systems to reduce delivery costs. In recent years, DCE has introduced many measures, such as rolling delivery, exemption from warehouse inspection, agreement-based delivery, and dynamic premiums and discounts for iron ore factory warehouses.
Second, DCE has effectively enhanced the continuity of active contracts, offering more choices for enterprise pricing and risk hedging. Since 2017, DCE has been implementing market-maker business in iron ore products. In 2022, it further introduced pilot programs with industry service providers for nearby contract market-making, which have led to continuous improvement in contract activity and better continuity in nearby futures contract prices.
Third, DCE has continually enhanced its industry service capabilities. DCE's management has engaged directly with industry leaders to offer one-on-one services. It has established a long-term, effective communication mechanism with over 50 iron and steel enterprises, implemented Executive Development Programs (EDP) for senior managers from coal, and coke mining industries, and established 21 incubation centers for the production and financing of the iron and steel raw materials industrial chain. With the “DCE Enterprise Risk Management Plan” as a guiding principle, DCE has guided the exploration of the basis trading so as to conduct pricing and risk hedging for imported and domestically sourced ores.
According to DCE, as for the next steps, DCE will build on the past success in the last decade for the listing of iron ore futures, and diversify the derivative tools to promote high-quality economic development and meet the actual needs of the iron and steel industry. By aligning its strategies with the actual situation of its products, DCE will continue to improve its market operation efficiency, offer better services for industry development, and increase industry participation.
