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On October 18, 2013, following the futures of deformed steel bar, coke and coking coal, the world's first iron ore futures with physical delivery were successfully listed on Dalian Commodity Exchange (DCE), making the hedging instruments for the iron and steel industry chain even more complete. The first listing month has seen brisk trading of the iron ore futures, a new futures product, with active participation of the industrial clients and the steady market operation featuring the price fluctuations centering around the spot market prices, thus gradually achieving the functions of price discovery and hedging against risks, meeting the requirements for high standard and steady starting and presenting the market with a satisfactory result.
According to statistics, in a total of 21 trading days from the listing until November 15, the iron ore futures totaled a trading volume of 2.549 million contracts for all contract months (bilateral, the same below, an equivalent of 254.9 million tons) with a total turnover of RMB 240.547 billion, recording an average daily trading volume of 121,400 contracts, an average daily turnover of RMB 11.455 billion and an average daily open interest of 114,800 contracts. November 15 saw a trading volume of 79,900 contracts and an open interest of 121,800 contracts. From the perspective of trading volume and positions, the performance of the first listing month was better than that of most of the contracts of major products listed in recent years. For example, the trading volume was nearly double that of the first listing month of the coke futures which are one of the briskest products listed on DCE, with the average daily open interest positions far more than those of the coke.
According to statistical data of DCE, in terms of trading, the operation of the iron ore futures was most characterized by the active participation of the corporate clients. In one month since the first day of listing of the iron ore futures when nearly 200 corporate clients participated in the trading, the number of the corporate clients has increased steadily and by the 15th nearly 500 corporate clients had engaged in the trading of the iron ore futures; in the first listing month the corporate clients recorded a total trading volume of 288,500 contracts, a total turnover of RMB 27.175 billion, an average daily trading volume of 13,700 contracts, an average daily turnover of RMB 1.294 billion and an average open interest of 35,400 contracts; the trading volume and the open interest of the corporate clients account for 11.32% and 30.87% respectively of those of total clients, nearly at the same level of the proportion of the corporate clients on domestic futures market. In terms of the distribution of the participating enterprises on the industry chain, involvement has been found among the mines, steel mills and trading enterprises with the traders more active in trading by accounting for 46% of the total average daily trading volume of iron ore futures among the corporate clients.
From the perspective of the global trading of iron ore derivatives, currently the domestic iron ore futures have exceeded other international iron ore derivatives in terms of the average daily trading volume, having become the iron ore derivative with the highest liquidity. The largest daily trading volume of domestic iron ore futures was recorded on October 18 at 338,700 contracts, an equivalent of 33.87 million tons on the basis of 100 tons per lot. In comparison, the iron ore swap contracts on Singapore Exchange Ltd. recorded the highest trading volume of 23.3155 million tons in July this year after the introduction on April 27, 2009.
In the aspect of the price tendency, in the first listing month, the prices of the iron ore futures fell first and then stabilized, running steadily, with the price fluctuations centering around the supply and demand relationship of the spots and reflecting the market expectations. For example, the benchmark listing price of the iron ore futures dominant contract i1405 was RMB 960 / ton, and the contract opened at RMB 978 / ton on the first day of listing, then falling, and stabilizing in early November, and by November 15, the contract closed at RMB 931 / ton, with the settlement price at RMB 935 / ton and the range of fluctuations only within 7.22%. He Bei, an analyst of Fortune Futures, said that after being listed, the iron ore futures have seen the trend of decline followed by stabilization, showing the futures prices lower than the spot prices and the prices of far month contracts lower than the near month contracts, and the trend and spread structure are in line with the expectations of the market for the fundamentals of the iron ore.
With regard to the price relationship of the spots and futures, the prices of the iron ore futures have shown strong relevance to both international and domestic spot markets, gaining recognition of the market participants as a result of the effectiveness of the futures prices. In addition, the iron ore futures prices have basically maintained the same trend with the four major iron ore price indexes and have been lower than the spots, showing that the iron futures on DCE have functioned well in pricing and correcting prices of the iron ore and have played the role in predicting and guiding the supply and demand of the spots to some extent.
Considering the high correlation of the futures and spot prices and the effectiveness of the futures prices, some enterprises have begun to actively participate in and make use of the domestic iron ore futures.
Shandong Wanbao Group is the corporate customer of the first trading of iron ore futures and relevant person in charge of the Group said, “It participated in the iron ore futures trading on the first day of its listing and it has mainly adopted such measures as hedging and arbitrage to avoid the risks of market change. In the long run, futures market will undoubtedly become the important part of trade companies, steel mills, and mining operation. Wanbao should pay attention to the price change. And it will consider participating in delivery in the future.” Trafigura Trading (Shanghai) Co., Ltd. is a subsidiary of an international well-known bulk commodity trader and person in charge of relevant department of Trafigura said, “DCE’s iron ore futures have become an important tool of its company to manage the overall risks in its metal business.”
While satisfied about the iron ore futures in the first month of its listing, market participants also suggest that the progress of the marketization of domestic futures market should be accelerated. Particularly, the iron ore, as an international bulk commodity product, should be opened up as early as possible, so as to allow international industrial enterprises and investors to directly participate in domestic market.
