Quick Take: Reaction Lukewarm to Iron Ore Futures’ Foreign Capital Debut

Market reception was lukewarm on the first day China’s iron ore futures contracts were open to foreign capital.

The price of the most actively traded iron ore futures contract — for September 2018 — fell 1.2% to 471.50 yuan ($74.13) per ton on Friday, after it surged to a near eight-week high a day earlier, according to Bloomberg data.

This marks the first time that China has allowed overseas investors to buy an already traded commodity futures contract. The change will allow China to gather experience that can inform the internationalization of similar products in the future, China Securities Regulatory Commission Vice Chairman Fang Xinghai said during a launch ceremony at the Dalian Commodity Exchange, where yuan-denominated iron ore futures are traded.

“All mature futures products will be internationalized to bring China’s influence in line with its economic position,” Fang said.

This debut follows the opening of China’s yuan-denominated crude oil futures to foreign capital in April, signaling the country’s ambition to have a say on the global pricing of commodities.

Foreign investors can now trade iron ore futures by opening domestic accounts, rather than through their Chinese units. So far, 22 foreign institutions have registered at the Dalian exchange, according to the official Futures Daily.

With the new access for foreign investors, market participants expect Dalian Exchange-traded iron ore futures to become a pricing benchmark in the international iron ore trade. The exchange is already the world’s largest iron ore derivatives market by trading volume.

China is the world’s largest consumer of iron ore. The country imported 1.08 billion metric tons (1.19 billion tons) of iron ore in 2017, accounting for 68% of total global shipments.

Contact reporter Liu Xiao (liuxiao@caixin.com)