China’s eyeing on futures markets as iron ore goes international

China plans to open more of its futures contracts to foreign investors, its securities regulator said on Friday, as Beijing launched its “internationalised” iron ore contract in a bid to boost its sway over pricing for one of its top imports.

Iron ore is the second commodity China has opened to outside investors after launching crude oil futures in March. The move is expected to increase trading in the contract, which was launched in 2013 and is already among China’s most liquid derivatives.

Major Western traders previously had access to the iron ore contract through local Chinese entities, but Dalian’s decision to internationalise means foreign companies no longer need to set up local Chinese units, opening the door to more market participants.

The most actively traded September iron ore on the Dalian Commodity Exchange fell 1.2 percent to 471.50 yuan ($74) a tonne by 0153 GMT, retreating from a two-day spike that pushed the contract to a more than one-week high on Thursday.

Volume on the most-traded contract reached 1.74 million lots, over two-thirds of the total volume in the prior session.

“We will accelerate the process to attract more foreign investors,” Fang Xinghai, vice president of the China Security Regulatory Commission, told a packed crowd at the trading floor of the Dalian exchange.

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“We will internationalise all the mature futures contracts and expand Chinese influence,” he said.

Unlike oil, gold and copper, for which prices are set in London and New York, iron ore is one of the few commodities whose global pricing takes its cue from China.

With massive volumes of iron ore futures traded on the Dalian exchange, prices there virtually dictate the path for the physical market. In 2017, Dalian iron ore volumes reached nearly 33 billion tonnes versus global annual iron ore trade of about 1.5 billion tonnes.

“I think it’s a positive move and will help boost liquidity and form transparent pricing for both suppliers and consumers,” said Sergio Espeschit, head of top iron ore miner Vale in China, on opening up iron ore futures to foreign investors.

 

 

Source: Reuters, ABC News

Kayra Watson
The Kootneeti Indo-Pacific Team

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