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Dalian Commodity Exchange: Iron Ore Futures’ Brand Delivery To Enhance Price Representativeness

Date 09/11/2018

As the first original listed product ushering in overseas traders in China, the iron ore futures has attracted wide attention from relevant parties of domestic and overseas markets in terms of its market operation and institutional innovation. It is learnt from the “2019 Iron & Steel Industry Chain Development Summit” held in Hangzhou that Dalian Commodity Exchange (DCE) is researching to launch the iron ore brand delivery system to further enhance the representativeness and stability of futures price and assist industry enterprises in avoiding risks.

It is introduced that steel mills tend more to purchase the high grade ore with higher iron content and lower silicon, aluminum and sulfur content, which leads to the continuous expansion of price difference between mainstream and non-mainstream ores. As the fixed price difference of premium and discount of futures cannot cover that price differences, such a trend has changed the most convenient delivery products and affected the futures price’s representativeness over spot goods. Besides, the single premium and discount system can not fully reflect numerous factors influencing spot price. The delivery quality standard of some new ores presents little difference from that of mainstream ores, but they have received low market acceptance, thus causing some difficulty for buyers to use and sell in delivery.

As a result, DCE has made targeted institutional innovation and launched a new delivery quality standard that is close to market changes in September 2017. And the brand delivery system under research is another measure to increase the price representativeness and stability of iron ore futures.

The general thought and procedures of iron ore futures brand delivery is as follow: DCE announces the accepted brands and the premiums and discounts; the seller applies for registering a warehouse receipt via a qualified supplier, making sure the goods are within the scope of accepted brands and providing relevant certificates; the qualified supplier should provide the goods owner with above documents when the buyer cancels registration of the warehouse receipt and makes delivery of goods from storage; in case of any doubts on brands, the goods owner can file a dispute at DCE, which will be ruled by the Brand Delivery Committee; if ruled as a false brand, the qualified supplier should compensate the balance to the goods owner.

With regard to the standard of the accepted brands and the premiums and discounts, the delivery goods shall be restricted to the brands with wide acceptance among steel mills, in a bid to meet the demand of most steel mills. These market-access brands of mainstream ores are of superior quality, sufficient supply and high liquidity. The import volume shall be the major index for imported ores, while the overall output and sales volume shall be the major indexes for domestic ores.

“The iron ore brand delivery system aims to restrict delivery goods to major mainstream brands, so as to rationally reflect the price difference of different ore varieties and make more prominent representativeness and stability of futures price. Under the context of iron ore futures internationalization, the brand delivery system will help to boost iron ore futures price to become a globally-recognized price benchmark and build a global trading mechanism based on iron ore futures.” A chief of the DCE Industrial Products Department said that DCE would demonstrate the feasibility and implementation details of the scheme together with relevant parties and launch the brand delivery system as soon as possible for the convenience of domestic and overseas industry enterprises to take part in futures trading and delivery.