Foreign Investors to Access Chinese Iron Ore Futures

Foreign investors have a new sandpit to play in, with China throwing open its historically volatile iron ore market to overseas dealers.

In a Wednesday (May 2) release, Li Zhengqiang, chairman of the Dalian Commodity Exchange (DCE),  spruiked the Chinese market, saying that opening futures to foreigners will “help develop a widely accepted price benchmark.”

“China, as the world’s largest importer and consumer of iron ore, has the obligation to provide an open, transparent and fair price benchmark reflecting the real supply and demand situation on the global iron ore market,” said Li. The DCE is a futures exchange based in the city of Dalian.

Li added that the introduction of overseas traders is based on years of the mature operation of domestic iron ore futures.

According to China’s General Administration of Customs, the country’s iron ore imports increased to a record high of 1.075 billion metric tons in 2017, up 5 percent year-on-year.

Analysts say the sheer scale of trading on the DCE means it regularly sways benchmark spot pricing.

Kelly Teoh, an iron ore derivatives broker at Clarkson Asia, commented, “DCE will always be a leading indicator. It has been and will always be [because of] the sheer volume of it.”

According to the DCE, iron ore futures volumes at Dalian were “23.44 times the total amount of iron ore swaps and futures transactions at the Singapore Exchange, the world’s second-largest iron ore derivative market.”

Twenty-one foreign trading agencies have so far registered at 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.

Overseas traders can participate through a domestic futures company member or a sub-entrustment by an overseas broker.

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Securities Disclosure: I, Scott Tibballs, hold no direct investment interest in any company mentioned in this article.