Rizhao Iron & Steel prices physical iron ore off Dalian futures

日期:2014-07-30 13:06:00

Rizhao Iron & Steel Group (Rigang) in east China’s Shandong province has become the first domestic mill to price physical iron ore off the Dalian Commodity Exchange futures contract, a company official said Tuesday.

Rigang signed agreements with Yong’An Capital and Zhongxin Huanqiu Trading July 23 to buy 10,000 mt and 5,000 mt of iron ore from them, respectively, with the price based on DCE’s September contract closing price on a particular day, with a premium or discount.

The settlement day must be selected within one month of the date when the agreement was signed.

“Such a pricing mechanism will help us steel mills to effectively minimize iron ore price volatility without having to participate in complicated hedging via futures,” the Rigang official said.

Such a pricing mechanism can only use DCE’s three most popular months — January, May and September — and be priced in yuan for port inventories, as opposed to dollars for seaborne cargoes.

The move shows the mill testing its pricing power at a time when the ore market has moved into structural oversupply.

A trader in Beijing said Tuesday such a trial would provide a solution to those mills still uncomfortable using futures as a hedging tool.

“Instead of directly getting involved into futures, Rigang can leave the hedging part with the professional and proficient brokerages or traders, while itself staying in the comfort zone of physical trading yet enjoying a bit of the benefit from the futures,” he said.

No background is known about Zhongxin Huanqiu Trading, while Yong’An Capital is a subsidiary of Yong’An Futures, an established and well known futures trading and brokerage entity headquartered in Hangzhou, east China’s Zhejiang province.

Source: Platts

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