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"As the contract develops and the liquidity grows, Wanbao will try to make full use of the derivative tool to hedge iron ore price exposure, and we are confident about the future of the contract," Xin Weihua, chairman of Wanbao, one of China’s largest private iron ore importers, told Steel First on Friday November 15.
The first deal on the day the DCE iron ore contract debuted was done by Wanbao.
DCE launched the world's first physically delivered iron ore futures contract on October 18.
"An iron ore contract in China and by China was inevitable, for it is a result of the development of the spot market. China, which has the world's largest spot iron ore market, needs such a hedging tool the most," Xin said.
With such a contract, Chinese steel mills and iron ore traders will no longer rely on rebar futures to hedge raw material costs, a less-than-ideal move that market participants previously had no choice but to resort to, he said.
In term of physical iron ore imports, Wanbao mainly acts as an agent for steel mills and its services range from negotiating with overseas suppliers, making orders, prepaying cargoes to overlooking shipments and clearance at the customs as well as inland transportation.
Some 20-30 medium-sized and large steel mills in China work with Wanbao.
Wanbao does not expect any immediate impact from the recent abolishment of China’s iron ore import licensing system.
Xin said many steel mills continued to engage the company’s services.
The import business is a high-cost operation, and it would also take time for a professional team to handle imports to be assembled and a line-up of sources established, he pointed out. Experience is also key, he added.
"It is a competition of services. In the near future, iron ore futures trading will also become a value-added service that Wanbao provides to customers. We have been developing our futures team over the past two years," Xin said.
Shandong Wanbao Group is seeking to lock in raw material costs for its customers with the newly launched iron ore futures contract on the Dalian Commodity Exchange (DCE).