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Opening China's DCE iron ore futures to overseas players to boost liquidity

Singapore (Platts)--17 Apr 2018 934 am EDT/1334 GMT


The Dalian Commodities Exchange's move to open up its Chinese iron ore contracts to international players on May 4 should result in a boost to liquidity across the futures curve with the impact on the physical market less clear cut, sources said.

"The DCE internationalizing is a game changer. It will provide a lot of liquidity into the iron ore market," an international trader said.

"One concern is currency conversion. When the yuan prices are converted to US dollar there may be some exposure."

The main obstacles for the internationalization of DCE's iron ore futures were around the handling of foreign exchange, the execution of margin calls, and delivery issues, market participants have said.

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The announcement on the DCE's iron ore futures market last Friday by China's Securities Regulatory Commission came less than two months after the Shanghai International Energy Exchange (INE) made a similar move in crude oil.

"The initial preparations for the internationalization of iron ore futures are all ready," a CSRC spokesman said at the time.

"It might bring relief to the over-supply of iron ore cargo in the market with more liquidity to short sell," a Chinese trader said. "However, it remains to be seen how an increase in price volatility will move physical prices."

As mills tend to have definitive demand for iron ore raw material, any volatility in the DCE yuan iron ore futures market may not necessarily see a change in physical prices, a Singapore trader said.

The DCE, headquartered in Dalian, in northeast Liaoning province, was established in 1993 and has launched futures contracts for agricultural and industrial commodities with physical delivery.

China's actual volume of iron ore imports reached 1.075 billion mt in 2017, accounting for more than 60% of the world's total seaborne iron ore trade.

--Sui Ling Phang, sui.ling.phang@spglobal.com
--Jun Kai Heng, jun.kai.heng@spglobal.com
--Edited by Dan Lalor, daniel.lalor@spglobal.com




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