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China's RMB Iron Ore Goes Live On May 4, Ending The Era Of High Prices In Australia

Apr 23, 2018

Like crude oil, China's dependence on iron ore consumption and imports is particularly high. China is the world’s largest consumer of iron ore. In the past decade, China has experienced market fluctuations such as the global financial crisis in 2008, the abnormal volatility of the stock market in 2015 and the sharp fluctuations in the prices of black products since 2016. The Chinese commodity futures market has been able to withstand the test. The basic institutional framework of China's futures market has an international "gene". So after March 26, 2018, China launched an international version of crude oil futures, after a great success, less than a month later, on April 13, 2018, China officially set the international version of iron ore futures - 2018 May 4.


The data shows that in 2017, China imported 1.075 billion tons of iron ore. Of the iron ore used by Chinese steel companies, 90% are imported ores, of which 70% are long mines.


As the world’s second largest trade commodity, iron ore itself is a very high degree of internationalization. At present, the influence of China's iron ore futures prices has gradually emerged, and the impact on the Platts Index has become increasingly apparent. From the trend point of view, the fit of China's iron ore futures and Platts index is already quite high.


At present, the internationalization of China's iron ore futures has been resolved in fiscal and taxation, foreign exchange management, customs and other related issues, everything is ready, only after internationalization, with the participation of foreign industry customers and investors, China's iron ore futures The influence will increase.


Among the global iron ore derivatives, the SGX iron ore futures and swaps are more influential. Singapore has a high degree of openness to the outside world, and there are also tax incentives. For example, the four major mining companies have branches in Singapore. Now China has also set up branches in Singapore. In fact, one of the current status of iron ore is. There is no globally recognized iron ore pricing benchmark. In comparison, the turnover of China's iron ore futures in 2017 was more than 20 times the total amount of iron ore swaps and futures transactions in the world’s second largest iron ore derivatives market—Singapore Stock Exchange, market size and flows. Sex has obvious advantages. China iron ore futures have the advantage of becoming the benchmark for global iron ore trade pricing.


In 2017, the average daily positions of corporate customers of the DCE iron ore futures accounted for 37% of the total, and nearly 1,000 industrial customers participated in the business. Only the DCE futures contract of 1.15 million tons was issued by the DCE Futures Corporation, creating China Futures. In the history of single month, the maximum delivery volume of a single variety, the delivery process is smooth and smooth.


China's iron ore imports are large and foreign dependence is high. The introduction of foreign traders, especially international industrial customers such as mines, will help improve the structure of China's iron ore futures traders. At present, the top ten iron ore traders in the world are participating in iron ore futures transactions through companies registered in China. . After the internationalization, it is believed that overseas traders will participate more actively in China's iron ore futures trading.


Well, China's iron ore is on the line at an unprecedented rate and it is Australia that has suffered the most.


Australia is the world’s number one iron ore exporter. The iron ore industry alone accounts for 7% of Australia’s GDP. China is one of the countries with the most intense demand for iron ore. More than 90% of the iron ore needs to be imported from abroad. According to the latest information, China’s iron ore imports exceeded 100 million tons in January this year, an increase of 9.3% year-on-year. However, the export of iron ore to China from Port Hedland in Australia fell to 31.3 million tons in February, down by nearly 10% from the previous month. Affected by this shock, Australia’s two major mining giants have reduced their output, and Australia has also lowered its export expectations for iron ore.


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