(Adds details and background)
BEIJING/SHANGHAI, July 14 China's central bank
has approved the launch of the country's first iron ore and
thermal coal swap contracts, two industry sources said on
Monday, giving industry participants new financial tools to
hedge the risk of volatile prices.
China is the world's top iron ore and coal consumer. The
launch of the two swap contracts marks China's latest effort to
gain influence over the benchmark pricing of a key commodity.
The move could pose a threat to the cash-settled iron ore
and thermal coal swaps contracts cleared by the Singapore
Exchange and CME Group.
The new contracts will be priced in the yuan and trade over
the counter, with clearing handled by the Shanghai Clearing
House, said two industry sources familiar with the matter.
"The two contracts will be launched soon and will be rolled
out at the same time," said one of the sources, who declined to
be identified as he was not authorised to speak to the media.
The People's Bank of China could not be reached for comment.
The swap contract for iron ore with 62 percent content will
be priced against a combination of reference indices published
by information providers CUSteel, China Beijing International
Mining Exchange and Mysteel.
The thermal coal contract will be based on the
government-backed Bohai-Bay Rim Steam Coal index.
A swap contract is a cash-settled derivative between a
seller and a buyer at a fixed price for a set amount of time,
providing price certainty for both parties on the underlying
China buys at least 60 percent of the world's seaborne iron
ore and last year imported a record 820 million tonnes, multiple
times the volume of iron ore swaps cleared by the Singapore
Exchange, highlighting the huge hedging opportunity in China.
China's total coal imports stood at 330 million tonnes last
year and accounts for about a quarter of global trade.
(Reporting by Coco Li and Fayen Wong; Editing by Tom Hogue)