Iron ore derivatives compete for heat

Following the introduction of 62% grade iron ore** by DCE, the Chicago Mercantile Exchange (CME) will launch a 58% grade iron ore** contract and the Singapore Exchange (SGX) will also launch a 58% grade iron. Ore swaps and **contracts. Global iron ore derivatives market share has been increasing.

Domestic iron ore successfully operated on foreign exchange eyeing "cake"

With the continuous fall in iron ore prices this year, the market's hedging demand has increased dramatically. Taking the domestic iron ore ** as an example, since the sharp decline in iron ore prices in March this year, the trading volume of iron ore ** has increased rapidly. From the perspective of monthly average daily trading, the average daily trading volume and positions of iron ore ** rose from the average daily volume of 67,400 hands (unilateral, the same below) and 48,900 contracts in the first month of listing to the November of this year. The daily average is 610,400 hands and 791,600 hands.

The successful operation of the domestic iron ore ** has left some foreign markets unsustainable. According to report, at the end of this year and the first half of next year, CME Group and the SGX-ST will successively launch new iron ore ** and swaps to share the “cake” in the iron ore derivatives market.

Among them, on December 8th, CME Group will officially launch a 58% grade iron ore ** contract, the price of which is used by CFR China. The SGX is not far behind and is expected to introduce a 58% grade iron ore swap and ** contract in the first half of next year.

Zhang Rongzhen, senior director of CME Group's Metal Products Division, said in an interview with the ** Daily reporter that CME has introduced a 58% grade iron ore ** contract, mainly to see the market's interest in 58% grade iron ore ** Increasing. At the same time, in the volatile market environment of price fluctuations, the shift in the relationship between 62% grade iron ore** and 58% grade iron ore** has also aroused market interest.

Zhang Rongzhen introduced that CME Group's 58% grade iron ore** contract is mainly targeted at traders, steel mills, and hedge funds currently active in the iron ore derivatives market. “Some customer groups are in urgent need of a 58% grade iron ore hedging tool, and some customers have trading requirements for the difference between 58% and 62% grade iron ore,” said Zhang Rongzhen.

Senior analyst Oscar Tarneberg said that the current price risk of iron ore fines based on the 62% grade index is on the rise, while 58% grade iron ore is currently no effective tool to prevent risks.

Perhaps because of this market opportunity, CME Group and the SGX were prepared to launch a 58% grade iron ore** contract. "The 58 percent grade new iron ore** contract is designed and launched based on customer demand. After the contract is introduced, investors can make full use of this tool," said Zhang Rongzhen.

She further stated that CME's “virtual steel mill” ferrous metal product line is a comprehensive risk management product that can effectively address a variety of price fluctuations. “Our market is very transparent, and ferrous metals products such as iron ore, coking coal, and hot-rolled steel contracts throughout the supply chain can offset each other’s margin.”

In Zhang Rongzhen's view, a cash-settled 58% grade iron ore, low alumina, CFR China (TSI)** contract can effectively control the price risk of customers without having to worry about physical delivery. “We also see a strong interest from the American investment agencies in participating in the CME Group's new iron ore contract.” For this new contract, CME Group seems to have full confidence.

The new iron ore ** has yet to be inspected by the market. According to the ** Daily reporter’s understanding, currently in the global iron ore derivatives market, the SGX has launched a swap and **, CME has launched a **, large business Launched the **, the supernatant launched a swap. However, there are still plenty of room for development in the iron ore** contracts that were previously traded on the index for the SGX and CME Group.

In the eyes of market participants, the construction and development of the global iron ore derivatives market is still at an early stage. Since the SGX launched the iron ore swap in 2009, the iron ore derivatives market has only been in existence for more than five years. . The relevant person in charge of DCE once stated that at the initial stage of market launch, domestic and foreign exchanges will introduce more iron ore derivatives, which will further cover the exposure of US dollar cargoes and enrich the hedging instruments for US dollar cargo.

However, whether the first 58% grade iron ore swap and ** contract is listed will be favored by the market? Of so many iron ore derivatives, whether the 58% grade swap and the ** contract will suffer from lack of liquidity?

An industry source stated that the iron ore derivatives market is still a relatively new market, and market liquidity is still being established. Zhang Rongzhen also told reporters that all new listing contracts will take time to establish liquidity, CME Group has been actively communicating with customers, encouraging participants to conduct hedging business, and will continue to help the market to better understand CME Group's product.

In her view, the liquidity of the iron ore market has been growing steadily. "Especially the amount of participation of arbitrageurs has increased significantly. I believe the iron ore industry has the potential to allow multiple varieties to coexist." For domestic iron ore** contracts, she said that the existence of two markets can give traders potential arbitrage opportunities.

Pricing diversification into a trend China's prices will play a decisive role With the continuous launch of global iron ore derivatives, the diversification of pricing in the iron ore market has also become possible. Senior researcher Qiu Yuecheng told reporters that at present, the domestic iron ore ** main contract's daily trading volume exceeds one million hands, and the resulting price is relatively more representative, if the new iron ore of CME and SGX The transaction scale can also be developed rapidly. It is believed that the prices formed at the same time on several platforms will more accurately reflect the market supply and demand situation, and will also bring more choices to the pricing of the market supply and demand sides.

"The transaction prices formed by various derivatives will certainly challenge the Platts pricing." Qiu Yuecheng bluntly.

In the interview with the reporter of the ** Daily newspaper, Hai Shou** iron ore researcher Ma Sikai also said that in the future, iron ore pricing will be diversified or become a trend. “In fact, when many investors are making deals, they will refer to each market. Now, iron ore producers will also refer to the SGX's related derivatives, and of course the Platts index in the spot market,” she said.

Ma Siyi further stated that in the "war" of iron ore derivatives, Dashang will be an important market. "Because China has a large spot basis, most of the iron ore is consumed by China." She told reporters that the reason why iron ore derivatives launched by some foreign exchanges before was not so active was mainly because of the lack of strong spot support.

Before the first anniversary of the listing of the iron ore **, the relevant personages of the DCE have stated that the future will continue to improve the liquidity of the recent months contract, to create continuity of price, and increase the impact of iron ore price. Strengthen the internationalization of the market.