* Volume for most-active contract at around 15 mln tonnes
* Dalian iron ore futures jump nearly 2 pct
* Iron ore is 4th commodities futures that China launched
By Manolo Serapio Jr and Ruby Lian
SINGAPORE/SHANGHAI Oct 18 China's first iron ore
futures debuted in heavy trade on Friday, boosting Beijing's
push to obtain a bigger say in pricing the world's No. 2 traded
commodity after oil.
The futures launched by the Dalian Commodity Exchange will
give Chinese steel mills, the world's top buyers of iron ore, an
alternative reference price for their purchases currently based
on index prices computed off a small proportion of China's spot
Beijing has not been shy about its distrust of index pricing
or of iron ore prices from data providers Platts
and Metal Bulletin . Only last month, a senior
official of the China Iron and Steel Association claimed big
miners were reducing volumes sold through spot tenders in order
to push up global index prices.
The Dalian contract is the world's first iron ore futures
that is backed by physical delivery, and being denominated in
yuan it can easily draw on the massive untapped hedging
potential in China.
China's big steelmakers Baosteel, Angang
and privately owned Shagang, as well as domestic
traders and institutions have all indicated their interest in
the Dalian futures, industry sources said.
"Today's opening and trading volume point to a good start
for the new futures, and a lot of institutional and industry
investors have shown strong interest in the tool," said Fu Yang,
an analyst with Guotai Junan Futures in Shanghai.
"The contract should help China gain more influence in
pricing iron ore in the long run, though this will not happen
Volume on the Dalian exchange for the most-active May iron
ore contract hit 300,818 lots, around the same
first-day level for recent futures contracts that China launched
such as thermal coal and bitumen.
The traded volume is equivalent to about 15 million tonnes.
By comparison, top global iron ore swaps clearer Singapore
Exchange handled a total 20.4 million tonnes in all of
The May contract opened at 978 yuan ($160) a tonne versus
the base price set at 960 yuan, touching a high of 984 yuan,
before closing at 977 yuan, up 1.8 percent.
The base price of 960 yuan, stripping out value-added tax
and other costs, is equivalent to about $129-$130 a tonne for
imported 62 percent grade iron ore cargo that includes freight
cost, traders said.
The price compares to the current industry benchmark of
$134.40 a tonne for the same 62 percent grade on
Thursday, based on data from Platts-owned Steel Index.
THREAT TO SWAPS
Dalian's iron ore is the fourth commodities futures product
that China has introduced this year. The world's first futures
in road-paving material bitumen was launched in Shanghai to
strong volumes just last week.
Besides wanting more influence over global commodity prices,
the launches signal a gradual opening up of China's financial
sector as it moves towards a consumption-oriented growth model.
The Dalian iron ore futures could pose a threat to the $28
billion swaps market in the commodity by exploiting hedging
potential in China without the trading restrictions that have
been a challenge for the global swaps market trying to tap
The price moves in Dalian caught swaps traders off guard on
Friday, with the May futures, which closed at the equivalent of
around $133 in Dalian, at a premium over the May swaps contract
which settled at $123.25 on Thursday, traders said.
"If I were a miner right now and I could sell May next year
at that price, that's quite a good price versus swaps," said a
Spot sale tenders held by global miners such as Rio Tinto
and BHP Billiton help determine the benchmark
prices provided by Platts and Metal Bulletin.
Foreign companies and banks can trade Chinese commodities
futures through local units that are registered in the country.
"I think Vale, Rio and BHP will get involved in this. The
liquidity of this product would be better than iron ore swaps in
the future," said an iron ore trader in Shanghai.
But he said it may be difficult for the market to consider
the Dalian contracts as benchmark given that they are
denominated in yuan that is not traded freely like the U.S.
China consumes more than 60 percent of global seaborne iron
ore and last year imported a record 744 million tonnes. Rio, BHP
and Brazil's Vale together control around two-thirds
of the 1-billion-tonne-plus seaborne market.