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The iron ore futures was officially listed and traded on Dalian Commodity Exchange (DCE) last Friday. On the first day of its listing, the trading volume of iron ore exceeded 338,700 lots, its turnover was RMB 33.034 billion, and its position-holding volume was 78,000 lots. Iron ore market participants attending the conference believed that the first day of iron ore futures’ listing long expected by industry insiders has received extremely high attention with the trading volume and position-holding volume both exceeding market prediction. The trading atmosphere has been very active.
On the first day of iron ore futures’ listing, the seven contracts of iron ore have all received good beginning and the pattern of “strong near-term contracts and weak forward contracts” have appeared in the futures contracts. The trading volume of dominant contract 1405 was 300,800 lots with the clearing price of RMB 975 per ton, up by 1.77%.
“On the first day of iron ore futures’ listing, the situation of ‘strong near-term contracts and weak forward contracts’ is related to the performance of Singapore iron ore swap market. The trading volume of forward contracts decreases gradually, showing that the market might first roar and then go down as the growth of iron ore supply has surpassed the demand within this year.” said Shi Yuchen, Analyst of Coal, Coke, and Steel of the Guosen Futures.
According to statistics, till October 16, the clearing price of the 1310 contract of the Singapore iron ore swap trading is US$ 132.5, very close to the current Platts Index of nearly US$ 135 per ton. The clearing prices of the Singapore swap in March, May, and September of 2014 are US$ 125.25 per ton, US$ 120.60 per ton, and US$ 115.06 per ton respectively.
Shi Yuchen introduced that the iron ore price is mainly affected by the steel industry and the macro-policy has had increasing influence on the current steel market of China. At present, the market has placed hope on the policies such as stimulating domestic demand and investment urbanization to be released after the 3rd plenary session, which will benefit steel demand. Besides, the State Council has lately released the policy of weeding out outdated capacity and 80 million tons of capacity in the steel industry is to be sifted out, which will also favor the market.
“The all-red on the first day of the listing is also related to the strong growth of China’s crude steel output released that day, which has boosted the market’s expectation for the downstream demand. And the reasonable listing price has also helped to promote the increase of futures price.” said Liu Jie, Analyst of Coal, Coke, and Steel of the China International Futures Research Institute.
The trading on the first day of iron ore futures’ listing is very active and its interaction with other varieties has already appeared, especially with the closely-related rebar steel futures. Previously, most commodity futures varieties in China presented the forward premium while the price curve of iron ore futures presented “high near-term and low forward”. Compared with the dominant iron ore contract 1405, the price of rebar steel futures 1405 is relatively high. As a result, part of the capital entering into the market has been engaged in arbitrage that buys iron ore and empties rebar steel futures, which has led to the sharp decrease of the forward price of rebar steel.
Statistics show that nearly tens of thousands of customers have participated on the first day of iron ore futures’ listing and over 2% of them were industry customers. The proportion of industry customers to all participating customers is about the same as that of domestic legal persons to the total opening accounts, reflecting that both individuals and legal persons have actively participated in iron ore futures. Guo Jiajun, Analyst of the BOC International Futures, said, “Judging from the performance on the first day, the market participation enthusiasm is relatively high. And according to our recent research on iron ore enterprises, many persons in charge of the steel enterprises said that the long-expected iron ore futures have finally been listed and they will actively participate in the iron ore futures trading, so as to conduct hedging for their enterprises.”
Shi Yuchen said, “Many steel mills and iron ore traders predict that the iron ore market in the fourth quarter of this year and in the first quarter of next year will maintain the situation of fluctuating while picking up. The price will remain between US$ 125 per ton and US$ 140 per ton. But steel mills and traders are not optimistic about the iron ore trend in next year and believe that they still need to observe the market’s implementation of national policies. Besides, the international mines’ capacity will be greatly released in the future several years, which will suppress the price formation of iron ore.”
