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In order to listen to the opinions and suggestions of all market participants, further improve the iron ore contract and relevant rules, and ensure the successful launch of iron ore contract and bring into full play of its role in the future, Dalian Commodity Exchange (DCE) released a notice on September 13 to publicly solicit opinions on iron ore contract and relevant rules from all market participants.
According to DCE’s notice, market opinions and suggestions will be solicited publicly on the “Iron Ore Futures Contract of DCE”, the “Amendments to the Settling Rules of DCE”, the “Amendments to the Trading Rules of DCE”, the “Amendments to the Delivery Rules of DCE”, the “Amendments to the Risk Management Measures of DCE”, and the “Amendments to the Standard Warehouse Receipt Management Measures of Soybean Meal, Soybean Oil, Palm Oil, Coke, Coking Coal, and Iron Ore of DCE” before September 24, 2013.
According to the content of the futures contract released by DCE, the trading unit of iron ore contract is 100 tons per lot, the minimum price change is RMB 1 per ton, the contract trading limit is 4% of the settlement of the previous trading day, the minimum margin is 5% of the contract value, the trading months range from January to December, the last trading day and the delivery day are the tenth trading day of the contract month and the third trading day after the last trading day respectively, and the delivery manner is physical delivery.
According to the exposure draft of the amendments to iron ore delivery quality standards, the iron ore standard delivery commodity is 62%-iron-grade ore fines and the ore fines and concentrates above 60%-iron-grade can also be used for delivery. The standard commodity should be designed in accordance with the mainstream bulk iron ore and bring into the microelement index limit.
According to the exposure draft of the amendments to trading rules and delivery rules, the maximum volume of iron ore contract trading order made each time is 1,000 lots and the delivery unit is 10,000 tons. The coking coal positions held by personal customers and the positions that are not the integral multiple of the delivery unit cannot be delivered. Contracts can be delivered at one time, and after the closing of the last trading day of contracts, the non-deliverable positions that have not been covered will, in accordance with the principle of “giving priority to non-deliverable positions and to positions with shortest time that are integral multiples of delivery unit”, be hedged and covered by choosing the opponent’s positions at the delivery settling price.
According to the exposure draft of the settling rules and the amendments to settling rules, iron ore futures’ major difference with the previous varieties lies in its delivery through both the standard warehouse receipt and the bill of lading (B/L). It is learnt that iron ore’s unit value is relatively low and therefore the same delivery costs will have greater influence on iron ore futures. In order to reduce delivery costs and enhance market efficiency, DCE has, according to the actual trade flow, designed the B/L delivery system besides the warehouse receipt delivery. Compared with the traditional warehouse receipt delivery, the B/L delivery can reduce the warehouse outbound and inbound charges, the short-distance loading fee, and the reverse logistics cost, altogether about RMB 20 – 40 per ton. The dual system of two delivery manners will provide the market with more choices and help to bring into better play of iron ore futures’ market function.
According to the exposure draft of the amendments to risk management measures, in terms of the margin system design, DCE will apply gradient charges on the margin of iron ore futures contracts that are close to delivery, that is, since the tenth trading day in the month before the delivery month of the iron ore futures contract, the contract margin will be increased to 10% of the contract value and since the iron ore futures contract’s entering into the delivery month, the contract margin will be increased to 20% of the contract value.
With regard to position-holding management, when the total bilateral position-holding amount in a contract month is less than or equal to 800,000 lots, the margin of each iron ore contract is 5% of the contract value; and when it is above 800,000 lots, the margin is 7%. In terms of position-holding limit, when the position-holding on a single side is less than or equal to 200,000 lots, there is no position-holding limit for futures company members; and when it is above 200,000 lots, the position-holding limit of the contract should be no more than 25% of the single position-holding. The position-holding limit of iron ore contracts of non-futures company members and clients in ordinary months is 40,000 lots and 20,000 lots respectively, the position-holding limit of non-futures company members and clients as of the tenth trading day in the month before the delivery month is 12,000 lots and 6,000 lots respectively, and that in the delivery month is 4,000 lots and 2,000 lots respectively.
Relevant person in charge of DCE said that iron ore is an important strategic bulk commodity variety and is also one of the major materials for iron-making which takes up 60% of the pig iron cost. After the breaking of the international “long-term” pricing mechanism, frequent fluctuation has been seen in iron ore prices and the steel companies have an intense risk-avoiding demand. And launching iron ore futures trading as soon as possible to conform to the development trend of the international iron ore derivatives market will facilitate the forming of open and transparent iron ore market prices and help spot enterprises effectively avoid market price fluctuation risks, thus enhancing China’s iron ore resource guarantee capacity, promoting industrial upgrading, and adding weight to domestic market’s competition for the right of speech in pricing. As a result, DCE has carried out in-depth research and demonstration for many years and, under the basis of soliciting opinions from all parties and in accordance with the principle of “Adapting to the Trade Practices of Spot Markets”, finished its design of the draft of the iron ore futures contract. DCE hopes to further improve the contracts and relevant rules by publicly soliciting opinions of all market participants, thus making sure that the contract will be launched successfully in the future and its market function will be given full play so as to better serve the spot enterprises and the industrial development.
