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The “2018 Dalian Commodity Exchange Symposium on Internationalization of Iron Ore Futures”, a concurrent event of the “China and Global Derivatives Market Development Forum” organized by Dalian Commodity Exchange (DCE), was held in Dalian on October 15. Guests from overseas industry enterprises like Trafigura and Anglo American and from financial institutions such as Societe Generale (France), the Commonwealth Bank of Australia and the Straits Financial Group, attended the meeting to discuss the development prospect of iron ore futures’ internationalization.
DCE Vice President Zhu Lihong introduced in her speech that crude oil and iron ore, as highly globalized commodity futures products, are closely related to the Chinese and global economy. Since the beginning of this year, Chinese crude oil futures has been listed, and the iron ore futures been opened up to the overseas markets, which have offered valuable opportunities for global industry enterprises and investment institutions to directly involve in the Chinese futures market. The iron ore futures standard contract is the 1st one in the world that adopts continuous quotation and physical delivery. The iron ore futures has maintained sufficient market liquidity and efficient operation quality since its listing. Closely connected to the huge iron ore spot trading in China, it creates favorable conditions for global clients to involve in iron ore futures.
She said that the iron ore futures officially ushered in overseas traders on May 4, 2018, marking a significant step forward of the futures market in opening-up. In the future, all parties in the Chinese and overseas markets will deeply engage in international business, jointly promote the continuous development and improvement of the futures market, and further promote the efficient and smooth participation of market participants, especially overseas traders.
The iron ore futures has recorded steady increases in its trading amount and open interest and received active participation from industry clients since its listing. In the first 9 months of this year, its accumulated trading amount and average daily open interest reached 197 million contracts and 904,400 contracts, showing sufficient market liquidity. The Chinese iron ore futures has become the largest iron ore derivatives market in the world, whose trading amount is more than 20 times of that of the iron ore futures and swaps of the Singapore Exchange, the 2nd largest iron ore derivatives market in the world.
With regard to the market structure, in the first 9 months of this year, the average daily open interest of corporate clients of iron ore futures accounted for 40.02%, up by nearly 3 percentage points compared with the same period of last year, which showed further improvement in the structure of market traders. As for overseas clients, till the end of September, 86 overseas clients from Singapore, Hong Kong, Britain, Australia and other countries and regions have opened accounts, and 57 have involved in trading. The steady operation of the iron ore futures market has boosted the display of the futures’ price-finding and hedging functions. And the correlation of the futures and spot prices reached 0.98, showing a strong price correlation between domestic and overseas prices. The iron ore futures has become an important instrument for global industry clients to discover price and hedge against risks.
As the only iron ore derivatives product adopting physical delivery in the world, its delivery has been smooth on the whole. Till September of this year, the total delivery amount was 5.46 million tones, and the delivery goods were dominated by mainstream ore products. “For years, the iron ore futures delivery has been smooth and in order. The futures and spot prices have been effectively restrained before the expiration of contracts, ensuring that the futures prices truly reflect the supply-demand relationship of spot goods.” said a chief of the DCE Industrial Products Department. He introduced that to meet the delivery demand of overseas clients, DCE has launched and optimized the iron ore bonded delivery system, which allows overseas sellers to fulfill the contracts through bonded delivery. Besides, DCE has initiated the business of the replacement of warehouse receipt, in which the warehouse receipt service provider registers bonded warehouse receipt to be replaced with the duty-paid warehouse receipts of the domestic delivery seller; the seller then matches the replaced bonded warehouse receipt with an overseas delivery buyer, thus bringing convenience for the overseas buyer to receive the bonded warehouse receipt.
At the meeting, some guests said that the iron ore futures has been widely recognized and involved in by overseas participants since the implementation of the internationalization business 5 months ago. “Trafigura has traded relevant DCE products and involved in the 1st transactions for the crude oil futures’ listing and the iron ore futures’ internationalization this year. We’ve learnt that the iron ore futures has provided overseas traders with two methods: opening an account directly through a Chinese futures company or by entrusting a Chinese futures company via an overseas broker. In the second method, an overseas client needs not open an NRA account, thus reducing relevant procedures.” said a guest from Trafigura Singapore. He also said that the trading and open interest of iron ore futures are very active and hoped that the iron ore options would be listed to form a more complete derivatives system together with the internationalized futures market.
A guest from KGI Securities said that judging from clients’ feedback, the internationalized iron ore futures have been well received among overseas clients, and its participation methods have solved the clients’ capital issue. It is hoped that the trader eligibility test, and the trading software application would be further optimized to bring more convenience to overseas traders.
To enhance the functioning of the iron ore futures market, DCE will continue to advance innovation in contract system. For example, it will improve the swap system to solve the low service efficiency of foreign capital; besides, it will study the feasibility of adding more kinds of currencies and carrying out classified settlement; and it will continue to implement the warehouse receipt service provider system, study to launch the iron ore delivery brand system, and increase the continuity of futures contracts and the clearness and stability of futures price. In addition, DCE will accelerate the market cultivation, encourage setting up branches and registering abroad, and construct an optimized technical system, delivery system and market service network that radiate the whole world, thus further enhancing the iron ore futures’ capacity of serving the international market.
