Posted on 13 May 2021
Dalian Commodity Exchange (DCE), headquartered in Northeast China’s Liaoning province, is collecting market feedback until 1700 Beijing time May 15 regarding its proposal to lower the ferrous content in its iron ore futures contract specifications, update the quality premiums against the standard iron ore in deliveries, and to allow for deliveries throughout the trading days of the prompt month contracts, it shared in a notice on the evening of May 11.
In the proposal, the ferrous content in the specifications will be lowered to 61% from 62%, and the latest amendment of premiums and discounts will apply to Carajas Iron Ore, Brazilian Blend Fines and Pilbara Blend Fines, enabling them to enjoy a quality premium of Yuan 15/dmt ($2.3/dmt) against the standard iron ore fines.
Quality requirements of standard product
Source: DCE
Proposed new premiums and discounts of iron ore
DCE’s official announcement in English can be found:
(http://www.dce.com.cn/DCE/TradingClearing/Exchange%20Notice/6278493/index.html)
Lowering the Fe grade in the iron ore futures contract are due to a few factors such as that the degrading the iron ore mines globally has dropped the average ferrous content among the mainstream medium-grade iron ore to 61.4%, and the change will also help to stabilize the brand premiums or discounts by moving some of the differences to the quality premiums and discounts, DCE explained in a WeChat post also on May 11.
Ever since the start of 2019, in the spot market, the Carajas premium against the PB fines, for example, ranged Yuan 40-249/dmt, while Super Special fines was having the discounts against the PB fines at Yuan 62-410/dmt, DCE noted, making it hard for the exchange to track and adjust its premiums and discounts in a timely manner to facilitate the deliveries of the futures contracts.
In the proposal, DCE stated that it will review and update the quality premiums and discounts every six months and announce the new numbers at the end of March and the end of September annually, which will be applied to the contracts that have been listed more than six months.
All the changes DCE has been introducing into its iron ore futures contracts since the launch on October 18 2003 is to better serve the needs of the industrial enterprises mainly the steel mills, to enhance pricing transparency, and to help with the stability and sustainability in the steelmaking raw material markets, Mysteel Global noted from the exchange’s sharing on many occasions.
DEC, for example, introduced the nine brands of imported iron ore and two brands of domestically-produced iron ore into deliveries since September 2019, and as of now, the number of the brands that are qualified for delivery has been enlarged to 17, which means that 620 million tonnes/year of iron ore that the Chinese steel mills consume can be used for deliveries, it shared in its Tuesday WeChat post.
DCE did not specify the implementation date of these changes in the notice on May 11, and for now, iron ore market sources, however, have shown limited interest in DCE’s new revisions.
“Personally, I do not think the proposal of these new adjustments will have much impact on the trading of the iron ore futures contracts or the market sentiment, as these may all be relevant only for the deliveries in May 2022,” a Shanghai-based iron ore trader commented, “so market will not factor this in their trading now,” he said.
He pointed out, though, that it was still unclear what possible issues this will bring along to the arbitrage between the DCE iron ore futures against the iron ore derivatives of the Singapore Exchange, as the latter’s ferrous content is at 62%.
By 1130 Beijing time on Wednesday, DCE’s most-traded September iron ore closed at Yuan 1,306/dmt, up Yuan 6/dmt from Tuesday’s settlement prices, according to DCE’s data.
Source:Mysteel Global
