On August 20, the “2015 China Coal-Coke-Steel Industry Conference (CCIC)” kicked off in Hangzhou. Zhu Congjiu, vice governor of Zhejiang Province, attended the opening ceremony and delivered a speech. Addressing the opening ceremony, Feng Bo, CEO of Dalian Commodity Exchange (DCE), said that DCE’s system of coal-coke-steel futures products has become more mature with the economic function in serving the industrial entities gradually brought into play; currently DCE is promoting the internationalization of the iron ore futures.
Feng said that China is the world's largest producer and consumer of coking coal and metallurgical coke as well as the world's largest importer and consumer, and the coal-coke-steel industry plays an important strategic role in national economic development. In the first half of this year, DCE's iron ore, coking coal and metallurgical coke futures totaled a trading volume of more than 100 million contracts (unilateral, the same below) and a turnover of RMB 4.8 trillion, accounting for 22% and 26% of the totals of the DCE market, respectively; especially the iron ore futures recorded rapid development, which is also the largest iron ore derivatives market worldwide in terms of both number of contracts traded and tons.
He pointed out that while the market is growing in size continuously, the role of the coal-coke-steel futures products in serving the industrial entities has been brought into play gradually. First, the high relevance of the futures and spot prices of relevant products is gradually changing the traditional pricing pattern. Since 2014, the correlation between the futures and spot prices of coke, coking coal and iron ore have reached 0.95, 0.89 and 0.99, respectively, and the futures prices have gradually become important reference for spot trading. In particular, the iron ore futures have had an important impact on the pricing pattern in the international market, having improved the openness and transparency of the prices. Second, the Basis pricing model based on futures has begun to affect the modes of spot trade, a large number of coal-coke-steel spot enterprises have tried to make the futures prices the valuation basis for spot transactions, and the basis trade contract of “futures price + premium and discount” is gradually becoming an important means for price negotiations between iron and steel enterprises and the trading companies. Third, the enterprises are active in using the futures instrument to improve the ability of risk management. In the first half of this year, corporate clients participating in the trading of metallurgical coke, coking coal and iron ore on DCE accounted for 34% of the daily average trading volume, with their daily average open interest accounting for 32% of these products’ total; the iron ore futures saw 568 spot enterprises participate in the trading, including 70 steel mills, 9 domestic mines and 489 trading companies. A number of enterprises have actively explored new business models with the help of the futures instrument, and improved the level and capability of risk management by a variety of means such as hedging, arbitrage and supportive financing.
He also pointed out that at present the series of coal-coke-steel futures products is gradually becoming more mature, but there are still some shortcomings: in terms of market size and liquidity, the three products have recorded uneven trading volumes; in terms of the structure of the investors, the degree of participation by industrial clients and institutional investors is relatively low compared with some foreign markets. To improve this, DCE has taken measures by revising the contract specifications of relevant products, enhancing the continuity of the market prices, adjusting the policy for commissions, further reducing the trading costs, supporting institutional investors, encouraging asset management and special corporate clients to participate in trading, organizing industrial training activities, etc. In the future, DCE will also further improve the rules for the existing products, and strive to make breakthroughs in the system of delivery without warehouse receipts for coking coal, the system of delivery on bill of lading for iron ore, the introduction of warehouse receipts market makers and other aspects.
He revealed that DCE is now promoting the internationalization of iron ore, which has been strongly supported by China Securities Regulatory Commission, the National Development and Reform Commission and other government departments, and is soliciting in-depth opinions from the market for the related plans and rules.