iron ore outlook has been raised., page-3

Hey RC

"Any thoughts on what the Dalian iron ore futures exchange will do to the IO price, Is its goal do drive down prices ?"

The goal of the DCE is to provide an outlet to secure future io prices, meanwhile collecting fees for the entities that run the exchange.

Consider that on the DCE, 34mt of io was traded compared to 2mt on the SGX swaps.

Consider that on the DCE, you can secure a cargo at $128/t on a september-14 delivery and on the SGX secure cash delivery at $120/t on september-14... effectively, I'd expect that arbitrage gap to close, and we're seeing that already with the Swaps prices jumping about 5% over the week.

The swaps are mostly traded by hedge funds with banks as counterparties, I'd expect these groups to increase their forward curve assumptions to reflect the reality that Chinese traders/mills are assuming constant pricing around $130/t into the future. $130/t seems about the right price mid-long term, when the io import price dropped below $130/t we saw a cutback in Chinese production, as the prices climbed above $130/t in August that production was brought back online.