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 commodity. 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.
Source: Business Recorder
- metaljunction »
- Metal News
Metal News & Events
Coal Insights (English) Monthly
Coal Insights is a ready reckoner for anyone associated with coal. This publication is aimed at tracking everything related to coal in India.
India Coal Market Watch(English) Monthly
ICMW is a one-stop source for all news, data and research pertaining to coal demand, consumption, stocks, spot- and long-term prices with respect to the Indian Market.
ISMW is a brand new high-end steel market report, covering all aspects of the steel industry in India.
Steel Insights(English) Monthly
Steel Insights delves into various facets of the domestic and global steel industry such as market fundamentals, raw material price trends, price forecasts etc.