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As the futures market’s influence on the iron and steel industry has been growing, basis trading based on futures prices has been promoted in the industry. At the “Signing Ceremony of Basis Trading – Forum on the Basis Trading of Iron & Steel Raw Materials” held by Dalian Commodity Exchange (DCE) and the China Iron and Steel Industry Association on August 6, participants said that basis trading has been a major trend for the bulk commodity trading in contemporary world, as it is able to lock cost or profits and satisfy the flexible negotiation demands of the trading parties.
Enterprises in the iron and steel industry chain have actively taken part in futures market in recent years. Under the support of DCE, some of them have started to make use of coking, coking coal and iron ore futures to determine the purchasing prices of raw materials. HBIS Group and Cargill now reached an overall framework agreement of 2 million tons of iron ore basis trading and plan to carry out the trading of 600,000 tons from July to December of this year, which is a beneficial attempt of exploring new trading mode in the iron and steel industry.
DCE Vice President Zhu Lihong said that DCE had deeply understood the close relation between the basis trading and the production and management of a company during its years of experience in serving the real economy, and it is able to offer an effective mode for enterprises to manage risks via futures market and according to its own operation. DCE’s iron ore derivative is the only one in the world that adopts continuous quotation and physical delivery and its iron ore futures price is thus more open, transparent and continuous, thus laying a foundation for carrying out basis trading on futures price in the international iron ore trading.
She added that the cooperation between HBIS Group and Cargill represented a major attempt of a large iron and steel company and a large international trading company in iron ore basis trading, which would exert demonstration effect on the international iron and steel industry and derivatives market. In the future, DCE would continue to promote basis trading and the over-the-counter derivatives business. More entity enterprises were expected to take advantage of basis trading to further manage market risks and fuel the development of iron ore trading.
