On December 11, DCE issued an announcement to solicit public opinions on the dynamic adjustment of brand premiums and discounts and the increase of deliverable brands for iron ore. The deadline is December 17, 2020. Market participants believe that the implementation of this plan will expand the scope of iron ore futures deliverables and make the iron ore futures market more closely integrated with the spot market.
According to the announcement, the contents of the public consultation of DCE include the proposed regular adjustment of brand premiums and discounts (that is, dynamic adjustment of premiums and discounts) and the proposed addition of three deliverable brands. The plan to regularly adjust brand premiums and discounts to be implemented by iron ore futures includes the frequency of premium and discount adjustments and data collection methods. Specifically, there are three schemes for adjusting the frequency of premiums and discounts, which are adjusted semiannually, quarterly or monthly. Among them, The sample period of the semi-annual adjustment plan is the previous 180 days, and the new premiums and discounts are applicable for the six-month period after release; the sample period of the quarterly adjustment plan is the previous 90 days, and the new premiums and discounts are applicable for the three-month period after release; and the sample period of the monthly adjustment plan is the previous 30 days, and the new premiums and discounts are applicable for the one-month period after release.
Brand premiums and discounts are regularly adjusted and released based on brand prices and quality premiums and discounts. Brand prices samples are proposed to be collected from diversified entities including Mysteel, Steelhome, Corex and other agencies, designated iron ore delivery warehouses, and the OTC business platform of DCE. The price collection locations are the designated iron ore delivery ports. Brand prices are calculated based on samples collected, with a certain method. The latest brand premiums and discounts are proposed to be released on the last trading day of the month before the month of implementation.
At the same time, the draft for comments also includes a deliverable brand plan to be added in the near future. Currently, DCE has initially selected three brands including IOC6, Kumba and Benxi Steel Mining Concentrate among the brands with larger output.
The reporter learned that due to the recent increase in domestic and foreign downstream demand, international trade frictions and other factors, driven by the sharp rise of the Platts Index and swaps abroad, Chinese iron ore futures prices have followed overseas price fluctuations. Due to the large differences in the supply and demand relationship between different brands of iron ore, the price difference between brands fluctuates frequently, and the existing fixed premiums and discounts lag behind the changes in the price difference between different minerals. Industry organizations and relevant market entities are calling for adjusting the positioning of iron ore varieties and further increasing deliverable brands to participate in delivery.
Market experts pointed out that the implementation of dynamic brand premiums and discounts and the addition of new delivery brands will help promote brand premiums and discounts close to the price difference between brands, reduce the difference in warehouse receipt registration costs between different brands, further expand the scope of delivery products, and promote closely matches of the price between spot and futures. At the same time, three more brands are planned to be added to the existing 13 deliverable brands. It is estimated that an additional 25 million tons of deliverables will be added each year, which will help further maintain the smooth operation of the market and prevent possible delivery risks.
The relevant person in charge of DCE said that DCE has recently solicited opinions and suggestions from industry organizations, industrial enterprises and investors, and continued to optimize the iron ore brand premium and discount adjustment plan. After the public consultation, DCE will further absorb the opinions of all parties, promote the implementation of the regular adjustment of brand premium and discount plan for iron ore as soon as possible, and implement the expansion of deliverable brands as soon as possible. In addition, the exchange is also studying the implementation of rolling delivery of iron ore to extend the delivery period and better support enterprises to participate in delivery.