China aims to launch iron ore options next year, and the world’s top buyer of the steelmaking raw material is looking to offer more hedging tools to iron ore producers and steelmakers.
China’s plan follows the opening of its iron ore futures to foreign investors in May this year, and would challenge iron ore options in Singapore, where the bulk of global trade is concentrated, as well as in New York.
It would follow China’s launch of sugar and soymeal options last year and copper options, which debuted just last week, according to Reuters.
“The Dalian Commodity Exchange is still working on preparations for the iron ore options. But it won’t take too long and could be launched by the end of 2019 at the latest,” a source told Reuters, declining to be identified as the plan has not been approved by market regulators.
A speech by DCE General Manager at an industry conference last week mentioned that the exchange “will actively promote iron ore options and also aim to launch scrap steel futures as soon as possible.” The exchange “will actively promote iron ore options and also aim to launch scrap steel futures as soon as possible.”
As a hedging tool, options would allow iron ore traders, miners and steel mills to manage price exposure, giving the buyer the right – but no obligation – to assume a futures position at a specified price.
Iron ore options are mainly traded on the Singapore Exchange, with 1.77 million contracts, equal to 176.8 million tonnes, traded in January to August, exchange data showed. New York-based CME Group Inc also offers iron ore options.
The Dalian Commodity Exchange (DCE) allowed foreign investors to directly trade iron ore futures for the first time in May, hoping the most liquid iron ore derivative in the world would benefit from more institutional investors.
It was the second commodity that China opened to outside investors after the launch of crude oil futures in March this year.