To reduce iron ore pricing volatility, buyers and sellers are encouraged to conduct more deals on fixed prices, Wu Jingjing, deputy head of Market Research Dept of the China Iron and Steel Association (CISA), proposed at the 14th International Iron Ore Market Seminar in Qingdao, East China’s Shandong province, on June 11.
“The high volatility in China’s imported iron ore prices these years has strongly indicated that the iron ore pricing indices have been more closely correlating with the derivative prices than with the really fundamentals in the physical market in the country,” Wu said, emphasizing that such a correlation may only add instability in the iron ore prices.
As of now, many overseas iron ore miners have locked long-term supply deals with the Chinese steel mills and some trading houses in terms of index pricing with certain discounts or premiums, Mysteel Global understands.
To reduce the influence of the financial market on the physical iron ore prices, Wu suggested foreign mining companies and Chinese steel mills to explore fixed-price deals.
Besides, iron ore pricing index providers should minimize referring to iron ore derivative such as swaps and rely more on fixed-price deals in the spot market for index calculation and assessments, he added.
Rational and reasonable iron ore prices will help promote a sustainable development among the Chinese steel mills, as “reasonably high steel margins will prompt them to uphold being eco-friendly in the industry,” he said.
Other than the market forces, related regulatory bodies such as the China Securities Regulatory Commission, the media, and the Dalian Commodity Exchange (DCE) all have the duties to safeguard and to enhance “authenticity, legitimacy, and standardization” in iron ore market information sharing including prices and data to minimize speculation in the iron ore trading and prices, Wu added.
As for DCE, to better serve the market needs and moderate the volatility, it needs to solve the issues such as the skips of its most-traded iron ore contracts only for the months of January, May, and September, to terminate night trading, and to facilitate physical deliveries of its iron ore futures, he elaborated.
China’s iron ore has been performing far more strongly than the domestic steel prices recently, as China’s national price of HRB 400 20mm dia rebar went up 4.2% on month or merely 0.07% higher than January 23 to Yuan 3,837/tonne ($543.6/t) including 13% VAT as of June 10, while the SEADEX 62% Fe Australian Fines grew 17.7% on month or 8.3% from January 23 to $103.4/dmt CFR Qingdao as of June 10, according to Mysteel’s assessment.
As of June 10, DCE’s most-traded September iron ore contract showed even greater volatility, closing at Yuan 759.5/dmt, up 20.2% on month or 15.3% higher from January 23 against the respective settlement prices, according to DCE data.
This article has been published under an article exchange agreement between Mysteel Global and SteelMint.
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