China's Dalian Commodity Exchange (DCE) will shift
its iron ore physical settlements to a brand-based system in 2020. This
will replace existing adjustments based on chemical properties and comes
in response to declining Fe levels in the market.
The change will take effect with the September 2020
futures contract "to better serve the industry and promote market
functioning," DCE said in a notice.
The new standards add 11 deliverable brands and set
their premiums and discounts to be applied for physical settlement. It
broadens the range of iron ores allowed by eliminating the upper limit Fe
so that 65pc Fe IOCJ fines can be used to settle, and lowers the minimum
Fe to include 58pc-grade fines. Two Chinese domestic iron ore concentrates
have also been added.
The allowable brands are PBF, NHGF, MACF, JMBF, Roy
Hill fines, BRBF, SSF, FBF, IOCJ, HBIS concentrate and Ansteel
concentrate.
DCE consulted with the industry about its settlement
system, after a popular choice for settlement fell below the exchange's
minimum 62pc Fe threshold.
The typical Fe of Australian mining firm BHP's JMBF
fell to 59.5pc from 60.3pc in July.
JMBF has been the dominant iron ore brand used for
physical settlement in recent months, but it no longer meets DCE's current
standards for physical settlement. It will be deliverable under the new
standards, as will 58pc segment brands SSF and FBF, and HBIS and Ansteel
domestic concentrates. Indian fines, YDF, WPF and RTX are not on the list
of allowable brands.
DCE's system has required it to referee physical
settlements when traders play the arbitrage between DCE chemical
adjustments and spot market valuations. DCE was forced to revise its
adjustments after traders used lower-priced Trafigura fines to settle the
May 2017 contract. It has limited use of ores that meet the standards,
including 61pc Fe RTX. The listing of allowable brands could reduce DCE
intervention.
The new standards relax limits for silica and
phosphorus but increase the penalty for higher levels of phosphorus.
Standards for sizing and trace elements will be eliminated.
DCE may still need to referee physical settlements
or closely monitor markets to keep its adjustments accurate. Already its
BRBF adjustment of a 20 yuan/t ($2.80/t) premium to the futures contract
is well off the market.
BRBF portside prices are flat to PBF, but Yn20/t
higher than PBF in DCE's rules, so market participants may buy the BRBF in
portside and physically settle it to pocket the difference, a
Beijing-based trader said. A similar arbitrage exists for HBIS
concentrate, he said.
Argus will update the ranges of iron ore content for
its 58pc and ICX 62pc seaborne iron ore indexes on 1 October following a
consultation. The range of grades eligible for inclusion in the ICX index
will widen to 59-63.5pc Fe from 60-63.5pc Fe. The range of grades eligible
for inclusion in the 58pc Fe index will narrow to 56-59pc Fe from 56-60pc
Fe.
Deliverable Brands and Relevant Premiums and Discounts of
Iron
Ore
Futures of
Dalian
Commodity Exchange
Brand Name
|
Short Name
|
Manufacturer
|
Premiums & Discounts (CNY/MT)
|
PILBARA BLEND FINES
|
PB
FINES
|
Rio
Tinto Commercial Pte. Ltd.,
Robe
River Ore Sales Pty. Ltd. and
Hope
Downs Marketing Company Pty. Ltd.
|
0
|
NEWMAN HIGH GRADE FINE ORE
|
NEWMAN FINES
|
BHP Billiton Marketing AG (Singapore Branch)
|
0
|
MAC FINE ORE
|
MAC FINES
|
BHP Billiton Marketing AG (Singapore Branch)
|
-20
|
JIMBLEBAR BLEND FINE ORE
|
JIMBLEBAR FINES
|
BHP Billiton Marketing AG (Singapore Branch)
|
-25
|
ROY-F
|
ROY FINES
|
Roy Hill Iron Ore Pty Ltd.
|
-20
|
Brazilian Blend Fines
|
BRBF
|
VALE INTERNATIONAL S.A.
|
20
|
Valley Metal (Shanghai) Co., Ltd.
|
SUPER SPECIAL FINE
|
SUPER SPECIAL FINE
|
CHICHESTER METALS PTY LTD
|
-90
|
FORTESCUE BLEND FINES
|
FMG BLEND FINES
|
CHICHESTER METALS PTY LTD
|
-75
|
Carajas Iron Ore
|
Carajas FINES
|
VALE INTERNATIONAL S.A.
|
35
|
HBIS Mining Concentrates
|
HBIS Concentrates
|
HBIS Mining Co., Ltd.
|
15
|
Ansteel Mining Concentrates
|
Ansteel Concentrates
|
Ansteel Mining Co., Ltd.
|
0
|
Source: Argus & DCE
|