US-based exchange CME Group announced today that it has launched two new futures contracts for iron ore stranded at the Chinese port of Qingdao.
The contracts, to be launched on January 10, will add to the growing range of risk management tools for the increasingly financialized iron ore market. These include CME's own futures contracts for 62 Fe marine ores, as well as segmented and high-quality futures contracts. However, the new port-side contracts will be the first internationally accessible cash-settled futures for onshore iron ore prices in China.
The port market, where smaller loads of iron ore are traded for cash after passing through Chinese customs, is gaining in importance on a number of fronts. As China seeks a greater role for price discovery at its ports, an increasing number of international companies, including trading and mining firms, are involved in the direct yuan sale of landbound cargo.
This has created two related but distinct markets, with an increasingly volatile price spread between the two, driven by a number of factors including shipping times, exchange rates and financing. Last year, Argus portside 62pc (PCX), which spanned the maritime (ICX) number, fluctuated between $13.25/dmt dry metric ton (dmt) discount and $17.60/dmt premium. The monthly averages between the two indices may differ by about $8/dmt.
Companies looking to manage this spread currently have a range of tools at their disposal, including physically settled futures on the Dalian Mercantile Exchange, or over-the-counter offerings from local financial institutions and traders. The CME contract will be the first contract available to international participants to offer a direct counterpart to existing seaborne futures.
Onshore futures markets have also become more difficult to trade, increasing the demand for an open contract in an international swap, especially between international trading firms that are exposed to offshore and offshore prices.
The contracts will be settled in cash based on the monthly average of the Argus PCX 62pc Fe port iron ore index, as well as the port equivalent price published as $/dmt, minus VAT and port fees.
Chinese port iron ore futures contracts will be listed and subject to Comex rules.
Comments
No comment yet.