CSRC gives nod to iron ore futures

The China Securities Regulatory Commission (CSRC), the country's securities regulator, approved the trading of iron ore futures on the Dalian Commodities Exchange, Liu Xingqiang, the exchange's president, told local media Wednesday at the International Oils and Oilseeds Conference, a move which experts say will offer domestic iron ore buyers greater protection from price fluctuations as market conditions remain uncertain.

Liu did not offer a specific time frame for when the contract would launch, but mentioned that trading could start as early as the beginning of next year. At present, iron ore futures contracts are only traded on three exchanges worldwide - the Singapore Mercantile Exchange as well as India's Multi Commodity Exchange and the Indian Commodity Exchange.

Although China is the world's largest iron ore consumer, the country has not yet developed tools for local importers and steel makers to hedge against changes in the commodity's price overseas, Zhang Jiabin, a senior researcher with the steel industry portal umetal.com, told the Global Times.

China imported 687.7 million tons of iron ore in 2011, up 11 percent from the previous year and accounting for 60.1 percent of all global imports, according to figures released on July 31 by the United Nations Conference on Trade and Development. China's General Administration of Customs also reported that the country imported 370 million tons of iron ore during the first half, up 9.7 percent year-on-year.

Most Chinese buyers have been purchasing iron ore on spot markets since 2010, said Zhang. Prior to this, he explained, annual contracts were the purchasing method of choice in the domestic market, however the weakening global economy wiped away the prices of many industrial commodities and made long-term agreements too risky.

"The huge price shifts seen recently in the iron ore market make this the perfect time to launch more derivatives products," said Zhang, who predicted that the contract would ultimately prove popular with domestic buyers given China's huge appetite for iron ore. "The Dalian contract could eventually attract greater trade volume than rival contracts in India," Zhang added.

The immediate effects of the contract may be limited though, as signs of sluggishness in China's economy as well as overcapacity in the domestic steel industry have dampened demand for iron ore and dragged down the prices of the commodity, Ni Yin, an analyst from the steel industry portal mysteel.com, told the Global Times.

"The current market downtrend has led to great losses for domestic traders and mills, which had previously imported ore at higher prices," said Ni.

In light of the domestic steel industry's growing deficits, domestic spot ore prices will likely run low over the coming few months, according to a statement released Wednesday by the China Iron and Steel Association.