CME to list new China portside iron ore futures

US-based exchange CME Group today announced the launch of two new futures contracts for landed iron ore at the Chinese port of Qingdao.

The contracts, launching on 10 January, will add to the growing array of risk management tools available to an increasingly financialised iron ore market. These include the CME's own futures contract for 62pc Fe seaborne ore, as well as lump and high-grade futures. But the new portside contracts will be the first internationally accessible cash-settled futures for onshore iron ore prices in China.

The portside market, where smaller cargoes of iron ore are traded for cash after passing through China's customs, is growing in importance on a number of fronts. China wants a greater role for price discovery at its ports, while a growing number of international companies, including trading and mining firms, are involved in direct yuan-denominated sales of landed cargoes.

This has created two interrelated but distinct markets, with an increasingly volatile price spread between the two driven by a range of factors, including shipping times, foreign exchange rates and financing. In the past year, the Argus portside 62pc (PCX) spread to the seaborne (ICX) number has swung between a $13.25/dry metric tonne (dmt) discount and a premium of $17.60/dmt. Monthly averages between the two indexes can differ by nearly $8/dmt.

Companies wishing to manage this spread currently have a range of tools at their disposal, including physically-settled futures on the Dalian Commodities Exchange, or over-the-counter offerings from local financial institutions and traders. The CME contract will be the first to offer a direct counterpart to existing seaborne futures, accessible to international participants.

Onshore futures markets have also become more challenging to trade in, stoking demand for a cleared contract on an international exchange, particularly among international trading firms with on and offshore price exposure.

The contracts will be cash-settled against the monthly average of the Argus PCX 62pc Fe portside iron ore index, as well as its portside equivalent price, published in $/dmt, minus VAT and port fees.

The ArgusPCX fell by Yn16/wmt to Yn705/wmt fot Qingdao today, taking its seaborne equivalent down by $2.15/dmt to $102.25/dmt cfr Qingdao. The PCX is at a discount to the Argus ICX 62pc index, which fell by $2.65/dmt to $105.95/dmt cfr Qingdao.

The China portside iron ore futures contracts will be listed by and subject to the rules of Comex.