Shanghai Debuts Iron Ore, Thermal Coal Swaps Handled in Yuan

Aug 04, 2014 5:35 am ET

(Updates with first iron ore swap deal in the 7th paragraph.)

Aug. 4 (Bloomberg) -- Yuan-denominated iron-ore and thermal-coal swaps debuted today in Shanghai as China, the biggest user of raw materials, races to become a global center for commodities trading.

The swaps, which are monthly, quarterly and yearly contracts, will complete the range of ore and coal derivatives currently available in China, according to the bourse. Iron ore futures and some steel products futures already exist in Dalian and Shanghai. Zhengzhou started thermal-coal futures in September last year.

The introduction of yuan-denominated swaps, similar to index-based contracts priced in dollars on Singapore Exchange Ltd., reflects China’s efforts to boost domestic trading and exert more influence on the global market for iron ore and coal. The trade may also allow Chinese steelmakers to better manage risks through hedging, said Ma Kai, an analyst at China International Capital Corp.

“There’ll be head-to-head competition since the new Shanghai swaps are very similar to the Singapore ones except the underlying currency and the index they choose to use,” Ma said by phone from Beijing.

China, the world’s largest coal producer and consumer, is forecast to import about 300 million metric tons of the fuel this year, with thermal coal making up about two-thirds of that, Deng Shun, an analyst with ICIS-C1 Energy, said today. Thermal- coal-fired power generating capacity accounted for about 70 percent of China’s total, according to the National Energy Administration.

Spot Ore

Iron ore swaps for September delivery, the most actively traded contract in Singapore, lost 1 percent to $94.56 a ton on Aug. 1, according to data from SGX AsiaClear, the largest clearer of the derivatives. Spot ore at the Chinese port of Tianjin fell 0.4 percent to $95.20 a dry ton on Aug. 1, according to The Steel Index Ltd.

Citic Securities Co. sold the first yuan-denominated iron ore swap today for delivery in the fourth quarter to Xiamen International Trade Group Corp. at 635 yuan ($102.76) a wet metric ton. The two companies will settle the contracts in cash using iron ore pricing based on the average of three different indexes, according to the bourse.

--With assistance from Jing Yang in Shanghai.