* Contract will be world's first with physical delivery
* Bourse looking at 100-tonne lot size, six delivery points
By Manolo Serapio Jr
SINGAPORE, May 9 China's Dalian Commodity
Exchange plans to launch the world's first iron ore futures
contract backed by physical delivery "as soon as possible", a
senior official said, hoping to tap demand for hedging tools
amid increased price volatility.
Iron ore futures contracts offered by exchanges in Singapore
and the United States are settled in cash, and Dalian's physical
delivery-backed contract may draw more iron ore consumers
managing risks as top importer China tries to gain the upper
hand in setting the price benchmark for its biggest import
commodity by volume.
"We are working hard to launch the iron ore futures contract
as soon as possible," Chen Wei, head of industrial products at
the Dalian exchange, told Reuters on the sidelines of an
industry conference on Thursday.
With contracts backed by physical delivery, buyers hedge
positions and secure supplies, while cash-settled contracts are
more open to speculative trading activity, which China tries to
"You can just throw out cash contracts even before the
expiry. You can also do that with contracts with physical
delivery, but less so because it puts the buyer at risk supply
wise," said a manager at a Singapore bank trading iron ore
"I think the Dalian futures will be a game changer, because
it has a physical component and more importantly it's coming
Each contract will be 100 tonnes of 62-percent grade iron
ore, said Chen. The exchange is looking at Tianjin, Qingdao,
Lianyungang, Tangshan, Dalian and Rizhao as delivery points, he
The yuan-priced contract will be open to foreign companies
with subsidiaries in China, he said.
The China Securities Regulatory Commission approved the plan
in October and Chen said the bourse is now awaiting the go-ahead
from related ministries.
A Dalian exchange official told Reuters last month the
exchange hoped to launch the contract this year.
China, which buys about two-thirds of the world's
1-billion-tonne plus iron ore a year, has been trying to wrestle
pricing power away from the global miners since the evolution of
contract pricing from annual to spot-based in recent years.
The Shanghai Futures Exchange is also looking at offering
cash-settled iron ore futures.
China set up its first physical trading platform a year ago
in a bid to help determine price benchmarks currently dominated
by foreign data providers such as Platts that calculate them
based on collected spot transactions, mostly in China.
China's top economic planning agency in March accused the
world's top three miners and some traders of manipulating the
market to push up prices that soared more than 80 percent to
near $160 a tonne .IO62-CNI=SI in February from three-year
lows in September.
The Singapore Exchange launched its iron ore
futures contract last month in a move to attract and retain U.S.
market participants faced with tougher rules in trading
over-the-counter derivatives such as swaps.
CME Group, the largest operator of U.S. futures
exchanges, will list its iron ore futures contracts on its
electronic platform from May, hoping to boost liquidity in a
derivatives market dominated by the Singapore Exchange.
SGX clears over 90 percent of globally traded iron ore swaps
with volume hitting a record 109 million tonnes in 2012.
The Dalian exchange began trading the world's first coking
coal futures contract in March and the world's first
metallurgical coke futures in 2011.
(Editing by Richard Pullin)