Iron ore futures internationalization helps enterprise risk management upgrade
“After the internationalization of iron ore, more and more international participants have entered the market, making domestic futures prices more and more instructive in the global market.” At the 2018 China International Iron Ore and Coking Coal Coke Industry Conference, practitioners in the iron ore industry who participated in international trade told China Securities Journal.
According to industry insiders, the coal coke futures market is operating steadily, providing an effective risk management tool and trade pricing benchmark for the steel industry. The introduction of iron ore futures into overseas traders this year will increase the global representation of China's futures prices, deepen the development of the service industry, and strengthen the enterprise's risk management capabilities.
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Further optimization of participant structure
The development of iron ore futures is becoming more and more mature, and market participation is constantly improving.
"To date, the cumulative volume of iron ore futures has reached 1.183 billion hands. Among them, the cumulative volume of the first half of this year was 154 million, the average daily turnover was 1,291,300, an increase of 16.53%; the average daily position was 1,076,900. The year-on-year growth was 11.87%.” Chen Wei, director of the Industrial products Division of the Grand Chamber of Commerce, said.
From the perspective of market structure, since the listing, customers participating in iron ore futures trading have grown linearly, and the market participants' structure has been further optimized. As of the end of June this year, the number of corporate clients of iron ore futures was about 18,000, including more than 1,200 steel mills, traders and other industrial customers. In the first half of the year, the average daily position of iron ore futures corporate customers accounted for 38.5%.
Especially after the internationalization of iron ore futures, the average daily position of corporate customers from May to July accounted for 42.2%, an increase of 10 percentage points from April. At the same time, the highest settlement price of iron ore futures from May to July was 494 yuan/ton, the minimum settlement price was 443.5 yuan/ton, and the fluctuation range was 11.39%. The average daily volatility of futures prices decreased year-on-year, and the price fluctuations were more reasonable.
As the only iron ore derivative in the world to take physical delivery, the iron ore futures delivery is generally smooth. As of the end of June this year, the cumulative delivery of 5.06 million tons, the delivery of goods in the spot market mainstream minerals. “When we first designed iron ore futures, we made it clear that we should make physical delivery. practice has proved that the physical delivery system enables iron ore futures and spot prices to converge effectively before the contract expires, ensuring that futures prices truly reflect the relationship between spot supply and demand.” Wei said.
According to industry analysts, China has the world's largest iron ore consumer market and the world's largest iron ore futures market, with the advantage of developing an international futures market. The introduction of overseas traders is conducive to the formation of benchmark prices with global industry customer participation and recognition, and is expected to play an active role in increasing the influence of China's futures prices and promoting international iron ore trade. At the same time, some domestic enterprises are also actively calling for the promotion of hybrid index pricing. After the introduction of overseas traders in iron ore futures, the average monthly price of iron ore futures contracts will be promoted as the basis for monthly pricing of iron ore international trade. Iron ore pricing system.
It is worth noting that in recent years, iron ore futures prices have gradually been accepted and used by domestic and foreign industrial enterprises, and the basis trade model based on iron ore futures prices has gradually been promoted.
According to Chen Wei, the basis trade volume of industrial customers using iron ore futures this year will exceed 10 million tons, about twice the trade volume in 2017. In August, Cargill, a global commodity trader, signed a long-term basis trade agreement of 2 million tons with Hegang Group, which is currently the largest iron ore basis trade contract in China.
According to Cargill related sources, iron ore futures provide a high-quality pricing basis for the Chinese port spot market. With the internationalization of iron ore futures, domestic and overseas industrial customers can trade in the same futures market. Futures prices better reflect global supply and demand changes, providing fair, transparent and objective price signals and hedging risk platforms for the global market. Make the basis trade contract closer to corporate hedging needs.
Overseas legal person users are also increasing. Wang Fenghai, general manager of Dashang, said on August 22 that since the international start of iron ore futures, 83 overseas customers have completed account registration and 56 overseas customers participated in the transaction. Ore futures maintain good interaction with spot and overseas market prices.
Domestic and overseas linkages have promoted the efficiency of enterprise hedging. In the first half of this year, the iron ore futures hedge efficiency reached 90.09%, which has become an important tool for domestic and foreign industrial customers to hedge their risks.
Meet the needs of domestic and foreign enterprises
The internationalization effect of iron ore is prominent, behind the iron ore futures, which continue to grow bigger and stronger by continuously satisfying the needs of domestic and foreign enterprises. As the first listed product introduced into overseas traders in China, the internationalization of iron ore futures means that foreign mines and other institutional clients can directly participate in the Chinese commodity futures market, and major enterprises at both ends of the spot market can participate in the futures market. To better promote the company's trade pricing and risk management.
Chen Wei said that iron ore is a highly internationalized product. Whether it is a foreign industry customer such as a mine, a steel mill or a trader, or an international investment institution, it needs a more credible pricing system and a more effective hedging tool. Hedging the risks of the international market.
For international mining companies, except for low-cost mines in countries such as Australia, the iron ore costs of other mining companies around the world are mostly higher than 40 US dollars / ton. The impact of iron ore price fluctuations on the revenue of related mining enterprises is higher. Big. Mines also have the demand to manage inventory and profit risks, and need internationalized futures market hedging.
For international traders, it is estimated that the global iron ore maritime trade has a non-long-term association of more than 400 million tons, and iron ore trade ranks second in the world. International traders also need to use international iron ore futures management. Risk of price fluctuations Blood in the urine.
For international investment institutions, the share price of iron ore as the main business shares rises and falls with the price of iron ore commodities. Investors can use the international iron ore futures market to hedge the risk of securities and debt investment.
"At present, the influence of the price of iron ore futures in Dachau is not only reflected in Chinese companies, but also in the world, the price of Dalian iron ore futures is increasingly concerned." Gao Bo, president of Shanghai Steel Alliance E-Commerce Co., Ltd. .
According to industry insiders, iron ore futures are natural water-fixing structures from the current supply chain relationship. By carrying out the basis trade based on the iron ore futures price of the Dachau, the steel mill can obtain a price that is more advantageous than the spot price of the day on the spot price, which reduces the production cost of the enterprise to some extent.
In addition, the use of the margin system based on the futures price also reduces the capital occupation of the steel mill procurement business, which reduces the capital cost for the steel mill. The basis trade has a clear delivery time, and the company can also adjust the delivery variety according to actual needs, so that the steel mill can arrange the production plan more reasonably.
Continue to promote international construction
In order to promote the function of the iron ore futures market, the next step is to continue to promote the innovation of the contract system.
In 2017, iron ore futures successively implemented the warehouse receipt service provider system and the transaction market maker system. Through the introduction of the warehouse receipt service provider, the customer can effectively solve the warehouse order demand; by introducing the transaction market maker, the non-main contract transaction fee is reasonably reduced, and the non-main contract activity is improved.
Chen Wei said that in the future, DCE will study the iron ore delivery brand system, enhance the clarity, stability and representativeness of iron ore futures prices; promote bonded delivery related business and ensure smooth delivery of overseas customers. While developing the on-market futures market, DCE will strengthen the construction of over-the-counter markets such as swaps and forwards, and promote business models such as options and off-exchange swaps in iron ore yards to further enrich the iron ore derivatives system.
"Based on the internationalization of iron ore futures, we are promoting the construction of an international iron ore pricing center to further enhance the international attractiveness and competitiveness of iron ore futures by optimizing market trading delivery systems and docking international market rules. Iron ore futures play an important role in the global iron ore trading system," Chen Wei said.
It said that the firm will continue to deepen its opening up and expand its overseas market operations, such as planning and planning international market expansion, promoting Singapore RMO license applications, and deepening cooperation with international mines to carry out overseas market expansion and promotion activities. In addition, we will improve the exchange rate system, study the feasibility of increasing the proportion of use, and improve the efficiency of the use of foreign currency funds, thereby enhancing the international market service level of iron ore futures.
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