$6 on the cards , page-2

Macrobusiness

IO price US$137.0 mt


In news today, Reuters explores Dalian futures:

China is making its third attempt in two years to have a bigger say in pricing iron ore. This time it may have hit on the winning formula.

Brisk trade in the first month on Dalian iron ore futures brings Beijing a big step closer to its goal of a China-based pricing benchmark for the world’s second most tradedcommodity after oil, and the biggest earner for top miners Vale , Rio Tinto and BHP Billiton .

…The Dalian contracts are the world’s only iron ore futures backed by physical delivery, giving China a first move advantage it doesn’t have with grains or metals. If the government allows foreigners to trade derivatives in the Shanghai Free Trade Zone, this would clear a major hurdle that held up previous attempts to set a benchmark.

“If more customers use the Dalian futures, why would anyone use Platts?” Li Xinchuang, deputy secretary general of the China Iron and Steel Association, told Reuters.

…Drawn by brisk volumes in Dalian, a mid-size Chinese trading company cut its exposure to over-the-counter swaps by half to invest the funds into Dalian iron ore futures, a manager at the Shanghai-based firm said.

Beijing has been trying to create an iron ore benchmark since the industry three years ago shifted to spot rates, after 40 years of fixing contract prices annually. It created its own price index in 2011 and then a physical trading platform last year.

China-based futures can thrive on domestic hedging demand. But to really become a global benchmark the sellers need to be involved, especially the major Australian miners who supply the bulk of the country’s ore, and it’s not clear this will be the case.

Rio Tinto does not plan to trade Dalian iron ore futures, chief executive Sam Walsh said, citing company policy toward financial derivatives in general.