DCE shifts iron ore futures delivery standard from specs to brand
China’s Dalian Commodity Exchange (DCE) has formally launched the brand delivery mechanism for its iron ore futures to replace the current delivery threshold of specifications.
The new rules - aimed to cater to market demand and better serve the industry - will take effect from the September 2020 iron ore futures contract, DCE said on its website late last week.
For the new physical delivery rules, DCE listed 11 brands of iron ore fines and concentrate while setting premiums and discounts for them.
The brands are Pilbara Blend fines, Newman fines, Mining Area C fines, Jimblebar fines, Roy Hill fines, Brazilian Blend fines, Super Special fines, Fortescue Blend fines, Iron Ore Carajas, Hesteel concentrate and Angang concentrate.
While the former nine brands are imported iron ore for the China market and were largely deliverable according to the old rules, the latter two are Chinese domestic products and are being allowed for DCE delivery for the first time.
For the standard product quality for futures delivery, DCE has kept the Fe content at 62%, alumina within 2.5% and sulfur no more than 0.03%, while widening the tolerance for silica to 5% from 4%, and for phosphorus to 0.10% from 0.07%. It has also removed requirements on trace elements and granular size.
For alternative deliverable products, the new rules have canceled the thresholds of 60% Fe, as well as the ceilings of 6.5% silica, 3.5% alumina, 0.15% phosphorus and 0.2% sulfur.
The new rules set a premium of 1 yuan ($0.14) for each 0.1 percentage point rise in Fe, and a discount for the opposite. For silica and alumina, each 0.1 percentage point increase leads to a penalty of 1 yuan, while for phosphorus, each 0.01 percentage point increase is penalized by 5 yuan. For sulfur, it remains 1 yuan discount for each 0.01 percentage point rise.
In July there were market jitters caused by Australia miner BHP’s downgrade of its Jimblebar fines from 60.3% Fe to 59.5% Fe, which would mean the most-delivered brand was no longer deliverable, according to DCE’s old rules.
DCE released a scheme on brand delivery for public consultation later in July.
(The third paragraph of this report was amended on September 18 to say “11 brands of iron ore fines and concentrate” instead of just “11 brands of iron ore fines” as originally published. The end of the sixth paragraph was also amended to say “trace elements and granular size” instead of “trace elements and sizing.”)