Posted on 23 Dec 2020
The Dalian Commodity Exchange (DCE), headquartered in Northeast China’s Liaoning province, has stepped up the curbing measures to chill the iron ore futures markets with the latest being introduced on December 22 by controlling the new open interests of any DCE iron ore contracts within 2,000 lots/day instead of targeting only the most liquid May contracts.
The latest DCE release on its website on December 21 states that the measure will, again, be applied to all the non-futures company members and investors while those investors for the hedging needs or market makers are exempt from the curtailing.
Since December 3, the DCE has been issuing various measures to cool down the overzealous enthusiasm on the iron ore futures, and the latest has been the first targeting all the futures contracts instead of the most-traded May 2021 contract, Mysteel Global noted, and the daily new open interest cap has been trimmed from 10,000 lots/d on December 7 and then 5,000 lots/d on December 11.
The iron ore prices have been into a surprisingly booming month since the start of December, and by the end of the daytime trading session on December 21, the most-traded May 2021 iron ore contract closed at Yuan 1,144.5/dmt ($175/dmt), up another Yuan 101/dmt from the settlement price on December 18 or up Yuan 305/dmt from the settlement price of December 1, according to DCE data.
As for the spot market, Mysteel’s PORTDEX 62% Fe Australian Fines price climbed to Yuan 1,188/wmt FOT Qingdao and including the 13% VAT, also up substantially by Yuan 98/wmt on week, or up Yuan 284/dmt from the price of December 1, according to Mysteel’s data.
The extraordinarily robust iron ore prices both in the physical and derivatives markets in the last month of 2020 have seriously jeopardized the interests of the steel mills, threatening their margins, according to the Iron & Steel Association (CISA), and both DCE and CISA have been taking various efforts to squeeze speculative trading out of the markets so that the price movements will truly reflect the actual market situation, Mysteel Global noted.
As part of the preventive measures, DCE released a notice on December 21 to collect market feedback regarding the open interests caps on the non-futures company members and investors to minimize speculative trading.
In the two proposals, the open interests will be curtailed bit by bit in accordance with the listing of a new month contract, the first trading day and the tenth trading day one month before the maturity of the contract, and the maturity and delivery of the month contract, all the way from 15,000 lots/d to 2,000 lots/d or 20,000 lots/ to 2,000 lots/d.
The proposal can be accessed via the official link: http://www.dce.com.cn/DCE/TradingClearing/Exchange%20Notice/6259274/index.html
In a sharing on December 20, DCE acknowledged that recent price movement has been due to both the fundamentals as well as the fact that compared with the highly-concentrated sellers’ sector, the buyers have been scattered and rather weak in pricing bargains.
The resumption of the normal iron ore market order should be relying on the joint efforts from all the related parties including sellers and buyers, and futures market should be used in the right way to help build up the new iron ore trading and pricing mechanism.
For DCE, it will step up its efforts in market surveillance, further optimizing the contract designs including margin calls, deliveries and trading charges, and adopting measures to prevent the overheating in the futures trading, all to ascertain that “the futures will carry out the functions of price discovery and risk management to better reflect and serve the physical market”, according to its December 20 post.
In general, DCE’s iron ore futures have been playing a positive role in helping reflect the demand and supply in the physical market most of the time, DCE highlighted, pointing out that in the first 11 months of 2020, there had been limited speculative trading in the iron ore futures, as the trading volume and open interests had decreased in contrast to the surges in China’s overall futures market in the aspects of trading volumes, open interests and capitals.
Written by Victoria Zou, zyongjia@mysteel.com
Edited by Hongmei Li, li.hongmei@mysteel.com
Source:Mysteel Global
