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While Dalian Commodity Exchange (DCE) is vigorously pushing forward the approval of the listing of the iron ore futures, on June 27, China Iron and Steel Association (CISA) held the training class of iron ore futures in Dalian with more than 200 attendees from CISA members and the institutions of related industries from home and abroad. In his speech, CISA Vice President Wang Xiaoqi expressed the support of CISA for DCE launching the iron ore futures in principle; Li Zhengqiang, President & CEO of DCE, said that DCE would further the demonstration for the contract rules of the iron ore futures, effectively guide, foster and serve the enterprises of the iron and steel industry in making use of the market and vigorously make preparations for the listing.
In his speech, Vice President Wang briefed the training class on CISA presidents’ work meeting held on April 20 this year, saying that with the study on the iron ore futures as the main part, the work meeting believed that as the derivatives market of iron ore rapidly growing in recent years has more and more acted on the development of the industry and enterprises of iron and steel, it is imperative for the industry and enterprises to pay great attention to the new trend and strengthen the research in the subject; the substantial price fluctuations of iron ore in recent years, which have caused great difficulties to the production and operation of the iron and steel industry, result in the necessity to research the market instrument for reducing operational risks in iron and steel enterprises; the iron and steel enterprises should intensify training to improve the lack of knowledge in the futures and other derivatives.
Wang also said that DCE has recently submitted the application for the listing of the iron ore futures, and CISA is in favor of DCE launching the iron ore futures in principle as they are conducive to the development of the iron and steel enterprises in the new situation of substantial price fluctuations of iron ore and the demand of the enterprises for hedging instruments; with the special feature of the iron ore commodity in different market positions for the buyers and sellers, it is suggested that in launching the iron ore futures and other derivatives, the experience and lessons in the related listed futures products should be fully drawn on to perfect the designing of the system of rules, tighten the supervision over trading in addition to setting up the necessary mechanism for correcting errors, and ensure the sound operation of the market; the opportunity of the launching should be adequately selected in the current situation of the iron ore price going down in general; besides, it is advised that training should be strengthened and the popularization of related knowledge should be intensified in the enterprises of the iron and steel industry.
Wang pointed out that though the launching of the iron ore futures and other derivatives will not change the supply-demand relationship of the iron ore in fact, it provides the enterprises with a new choice in the pricing mechanism as well as a risk-averse instrument. However, the enterprises must use the instrument under certain conditions to avoid causing harms to themselves. As currently the iron and steel enterprises are not familiar with the futures market relatively with inadequate experience generally, the enterprises should consider the facts such as the personnel and knowledge reserve to decide whether to participate, achieving progress step by step, making greater and greater efforts and accumulating experience. The enterprises should set up sound regulatory framework internally to avoid participating blindly with insufficient preparation, causing undesired results.
In his speech, DCE President & CEO Li said that the training class is an important initiative taken by CISA to promote the upgrading of the iron and steel industry and enhance the competitiveness of the industry. With in-depth development of the market economy and the increasing integration of the derivatives market in the real economy at present, in addition to new technologies, new business models, new business ideas and new management methods, whether the enterprises can effectively use the derivatives to manage the risks of the prices of raw materials or products should also be a factor in upgrading China’s economy. After a long-term rapid growth, the iron and steel industry is now in the face of excess production capacity and the structural adjustment and transformation with the products risking the substantial price fluctuations. The entire industry should consider the question how to actively respond and use the mature instruments in the market to manage risks under the new situation. In the efforts, DCE hopes to provide more services, effectively develop and design the systems for the iron ore and other products and help the enterprises to make better use of the futures instrument.
Li Zhengqiang said that the iron ore is not only a strategic product pushed by DCE to be listed but also one of the four major strategic products vigorously pushed by China Securities Regulatory Commission (CSRC) to get listed. After 20 years of development, DCE has developed from an exchange of agricultural commodity futures into a comprehensive exchange with the two major bulk commodities of coke and coking coal successfully listed and operated on it, which has provided abundant experience for the barter trade and delivery of the bulk commodities as well as the practical experience for the delivery of the iron ore futures. Currently all market participants have reached the consensus on the launching of the iron ore futures, and since DCE’s project of iron ore futures was approved by CSRC last October, DCE has vigorously pushed forward the listing of the product. In the next stage DCE will further the demonstration of the contracts and the rules system of iron ore, and energetically guide the enterprises in fully understanding the futures market and using the iron ore futures to effectively manage the market risks.
Li also said that the training class and discussions are conducive to enhancing the iron and steel enterprises’ awareness and understanding of the futures market and preventing the enterprises from participating in the market blindly and on impulse as well as the enterprises forming mature concepts for participating in the futures market and making use of the derivatives, and it is DCE’s hope to listen to more insiders’ opinions and suggestions at the training event in a bid to make the designing of iron ore contracts and system more reasonable, more responsive to market demands and more accessible for enterprises. He also hoped that as the organizer of the training event, DCE could establish the in-depth and diversified cooperation with more industry organizations including CISA so as to better serve the development of the industries and the real economy.
In the training class that day, Wang Yingsheng, Director of Market Research Department of CISA, delivered the keynote speech on the “Analysis of Current Iron Ore Trade”, Fei Zhonghai, Chief Risk Officer of Bulk Commodity Department of China Oil and Foodstuffs Corporation (COFCO), made the report on “how the enterprises correctly use the futures market to manage risks”, Chen Dongwei, Deputy General Manager of Sinosteel Futures, analyzed the cases of the enterprises using the market, and the officials and experts of DCE’s Industrial Products Division explained the “Functions and Roles of Futures Market” and the contracts of the iron ore futures.
The training class was so well received by the CISA members that the planned number of 100 attendees grew to about 200. According to both the speakers and the representatives of steel enterprises at the training class, currently the iron and steel industry is in the face of weak market demands, the dropping product prices and the losses of the enterprises’ main businesses, and the iron ore index pricing energetically pushed by the three largest mines in the world tends to be manipulated on the market as a result of determining the prices of most supplies by small samples, hence the calling for launching the “China-version” iron ore futures featuring physical delivery as soon as possible, for the purpose of, on the one hand, providing the domestic enterprises with risk-management instruments and helping them out of business difficulties, and on the other hand, setting up the global iron ore pricing center in China as soon as possible to avoid China, the largest iron ore importer, being under the control of other countries in the trade. It was believed that the competition in the international iron ore derivatives market is turning white-hot as on the basis of swaps and options of iron ore, the Singapore Exchange and the Chicago Mercantile Exchange launched the iron ore futures in succession this year and in May the Intercontinental Exchange and the London Metal Exchange announced that they were to launch the iron ore futures, forming the “pressing force” for launching the iron ore futures in China.
