China opens up iron ore market
Foreign firms to trade in Dalian futures
China opens trade in Dalian iron ore futures to foreign investors from Friday, aiming to boost its pricing clout for one of its top imports and hoping traders will take a market notorious for retail speculators more seriously.
Iron ore is the second commodity China is opening to outside investors after launching crude oil futures in late March. Unlike crude oil, though, the iron ore contract on the Dalian Commodity Exchange (DCE) – launched in 2013 – has a deep pool of liquidity and major Western traders have already had access through local Chinese entities.
With trading volumes in 2017 that reached 20 times global iron ore trade, and 25 times volumes seen in rival contracts on the Singapore Exchange, iron ore futures in China regularly sway benchmark spot pricing. Giving foreign investors direct access can only boost that influence.
“DCE will always be a leading indicator. It has been and will always be [because of] the sheer volume of it,” said Kelly Teoh, an iron ore derivatives broker at Clarkson Asia Pte Ltd.
Global commodity traders including Glencore, Trafigura and Cargill already trade Dalian futures via China-registered units, sources with knowledge of their participation say.
Cargill said it has been trading DCE’s iron ore futures since the contract launch, using it as a price reference to manage its own inventory risk.
“The internationalization of the DCE iron ore contracts will give greater access to the global commodity community to trade in the world’s biggest onshore ferrous market,” Lee Kirk, managing director at Cargill Metals, said in an email.
More global players on the DCE should lead to “more efficient pricing and increased liquidity,” he said.
Officials for Trafigura and Glencore declined to comment.
Twenty-one foreign trading agencies have so far registered on the DCE, according to the China Securities Journal, the official publication of China’s top securities regulator, although the DCE has declined to name the agencies.