Iron ore futures for physical delivery debut on the Dalian Commodity Exchange today as China takes greater control of price setting in the biggest seaborne commodity trade after oil.
The contract for delivery in May, the most active by volume with 300,818 lots, closed at 977 yuan ($160) a metric ton, after opening at the bourse-set price of 950 yuan. The exchange, the nation’s third-largest by volume of futures, will use stockpiles of the steel-making feedstock at shipping terminals including Tianjin and Qingdao, as well as material held at some mills.
Dalian’s futures backed by the raw material challenge index-based contracts settled financially by CME Group Inc., Singapore Exchange Ltd. and IntercontinentalExchange Inc. Overseas companies will be allowed to trade via units registered in China, the bourse said.
“China is a natural home for iron ore trading as the biggest user,” said Wu Wenzhang, head of research at Shanghai Steelhome Information Technology Co. “There’s more than 90 million tons of inventory sitting at Chinese ports, providing perfect conditions for delivery that’s unmatched anywhere else in the world.”
Imports by China rose to a record 74.6 million tons in September, buoyed by steel demand, according to data released on Oct. 12 by the customs agency. China’s purchases accounted for about two-thirds of the seaborne trade that totaled 1.18 billion tons in 2012, according to estimates by CME Group. based on last year’s average price of $128.30 a ton for ore cargoes with 62 percent iron content offloaded at Tianjin, the annual trade in the commodity is worth more than $150 billion.
“Judging from the first day of trading volume, the new iron ore futures attracted quite a lot of participants and we think it bodes well for more liquidity in the future,” said Gao Bo, an analyst at Mysteel Research in Shanghai.
Iron ore entered a bull market in July as users in China replenished stockpiles that shrank in March to the lowest level since 2009. Prices at Tianjin measured by The Steel Index Ltd. have rallied 22 percent from this year’s low on May 31 to $134.40 a ton Oct. 17.
The Singapore Exchange has the largest market for iron ore securities, with the volume of swaps cleared in September increasing 16 percent from a year earlier to 40,917 contracts, equivalent to 20.5 million tons, according to its website.
The Shanghai Futures Exchange started contracts for steel reinforcement-bars in March of 2009. Rebar futures are now the most-traded of any metal in China after copper, with an average of 1,486,111 lots valued at 55 billion yuan changing hands every day in 2012, according to data from the bourse.
Chinese steelmakers had questioned the reliability of a price index provided by Platts that became a benchmark after producers including Vale SA and Rio Tinto Group scrapped annual contract price talks in 2010.
“Theoretically, there are no obstacles for suppliers such as Vale and BHP to trade Dalian’s iron ore futures,” said Wang Shumei, an official at the bourse who helped design the contracts. “When China scrapped a licensing system for iron ore imports this year, it cleared the last hurdle to the foreign participation.”
The underlying commodity for the Dalian futures is ore with 62 percent iron content that contains no more than 4 percent of impurities such as aluminum and silicon, said Wang.