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The “18th China International Steel & Raw Materials Conference” was held in Dalian on September 20 and 21. It was jointly organized by the China Iron & Steel Association and the Metallurgy Branch of China Council for the Promotion of International Trade (CCPIT) and supported by Dalian Commodity Exchange (DCE) and other units. At the conference, some guests said that entity enterprises are having increasingly strong demand on managing international market risks via financial derivatives along with the improving international level of Chinese iron and steel industry. China’s iron ore futures ushered in overseas traders in May this year, which has helped to enhance the international influence and risk-avoiding efficiency of the Chinese iron ore futures.
Derivatives Risk-avoiding Mode Upgraded
Wang Qiang, Chief of the Strategic Client Department of Cargill, said that Cargill has carried out basis trading based on futures price in several bulk commodity products. In particular, it signed a long-term basis trading contract on iron ore with the total volume of 2 million tons and the 1st stage of 600,000 tons with the HBIS Group, and the two sides have agreed to complete spot trading with the HBIS Group making spot pricing at appropriate time every month and Cargill hedging in futures market. The price fluctuation risk that might occur in traditional trading has been naturally transferred to the futures market, which will help steel plants to lock purchase cost and obtain stable supply of goods without directly involve in the futures market and also help trading companies to consolidate the cooperation partnership with large steel plants and expand the marketing channel.
Representatives of the HBIS Group and Cargill believed that DCE’s iron ore futures has provided high-quality pricing basis for the Chinese port spot iron ore market. In particular, since the ushering-in of overseas traders of iron ore futures in May, great attention and active participation has been seen in overseas clients. This measure will help domestic and foreign clients to trade at the same platform and form an open, transparent and continuous futures price signal, and effectively hedge against risks. It will also further display the price-finding function and get the basis contracts closer to the hedging demands of enterprises in the world.
OTC Options Offering Individualized Schemes
Enterprises will encounter different market risks in their operation and have diversified and individualized risk management appeals. And the over-the-counter (OTC) options will provide them with customized financial services to effectively reduce their comprehensive risk management cost.
To boost OTC options to better serve entity enterprises at a wider scope, DCE has carried out the OTC options pilot program since 2014. In 2017, it supported and conducted 15 OTC pilot programs on industrial products and offered risk management services for Ansteel, Valin Steel, Xuyang and other leading enterprises in the iron and steel industry. Under the DCE’s support, the service scale of OTC options has risen rapidly, and its varieties, service quality and innovation capacity has been further developed, making it another key means for enterprises to make use of the futures market.
