SHANGHAI, Oct. 9 (SMM) – Dalian Commodity Exchange (DCE) is making some steel factories in Hebei province as delivery points for iron ore futures, hailed by market participants as an innovation in physical delivery, Shanghai Metals Market understands.
Some steel factories in Hebei’s Tangshan city are being made delivery points so cargos delivered in and out there do not need to pass through ports, DCE’s officials recently told Chinese media.
Those factory delivery points are being made in addition to regular points located in five ports around China’s Bohai Rim region, namely, the ports of Qingdao, Tangshan, Rizhao, Tianjin and Lianyungang.
Those ports are hubs of the iron ore trade in China, accounting for 60% of China’s total throughput of iron ore.
By comparison, Hebei province is China’s main region for iron ore production and consumption, accounting for 40% and 24.9%, respectively, of the country’s total in 2012.
Factory delivery points there are believed to make delivery convenient for domestically-produced iron ore, and to reduce delivery risks and logistics costs.
DCE has set the iron ore fines of 62% grade as the benchmark delivery product of its iron ore futures with the fine ores and concentrates above the grade 60% as alternative delivery products. It also has made the iron grade, silica, alumina, sulfur and phosphorus contents as the main indicators of premiums and discounts in delivery products.
DCE’s iron-ore futures contract is one of the first hedging tools for the steelmaking raw material backed by physical delivery. Dominant hedging tools so far have been cash-settled swaps offered by the Singapore Exchange (SGX) and CME Group.
The exchange successfully ran a first trial trading for iron ore futures on September 28 and is expected to launch the contract before year-end.
China is the world’s largest iron ore consumer and importer and the third largest iron ore producer.