Jiangxi Observation Standard Settlement Observation Standard Production Plant

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　　In terms of delivery, as of the end of April 2019, a total of 5.79 million tons of iron ore have been delivered, mainly at ports in East China, and the delivery minerals are mainly mainstream minerals. Among them, after internationalization, a total of 5 contracts for iron ore were delivered, with a cumulative delivery of 1.79 million tons and an average delivery basis of 27.2 yuan/ton, which is basically the same as the 23.3 yuan/ton before internationalization (January 2017 to the end of April 2018). A stable basis level ensures that the settlement price can effectively converge before the contract expires.

　　In addition to market structure and price correlation, the liquidity of recent month contracts for iron ore has also significantly improved over the past year. The trade of iron ore and the production and operation of steel mills have continuity, and the ideal contract for enterprise hedging or basis pricing is a 1-3 month near month contract. In order to improve the continuity of non 1, 5, and 9 contract activity, Dashang has introduced innovative systems such as iron ore warehouse receipt service providers and service providers, which support customers to participate in near month contracts while dispelling their concerns about avoiding near month contracts due to poor delivery capabilities. Under the aforementioned system, the trading volume of iron ore contracts has significantly increased in recent months. The trading volumes of contracts 1807 and 1811 were 3.42 million and 6.28 million, respectively, while the trading volumes of contracts 1707 and 1711 were only 0.62 million and 0.84 million, respectively.

　　Trade presents continuity, and industrial enterprises need to hedge contracts for consecutive months. The increase in activity of non main contracts creates conditions for enterprises to hedge, which is of great significance for enriching risk hedging methods and facilitating industrial enterprises to participate in short-term contract hedging. Qiu Yuecheng, Director of Black Research at Everbright Research Institute, told reporters that after the improvement of non main contract transactions, they can also use the price difference changes between different contracts for arbitrage, which to some extent helps to reduce the frequent fluctuations in short-term contract prices and promote the smooth operation of the market.

　　On the first anniversary of internationalization, overseas clients seek domestic tools for hedging

　　With the accumulation of price fluctuation risks, both overseas mines, traders, and domestic steel mills are facing severe challenges in risk prevention and control.

　　The daily reporter learned that, except for countries such as Australia where the cost of ore mining is relatively low, the cost of iron ore in other mines is often higher than $40/ton, and fluctuations in iron ore prices directly affect mine revenue. It is estimated that the non long term contract volume of iron ore shipping trade worldwide exceeds 400 million tons annually. How to manage the risk of the iron ore market through derivative tools has become an important issue facing domestic and foreign industrial enterprises.

　　On May 4, 2018, after years of preparation for the internationalization of iron ore, China's listed varieties set sail for opening up to the outside world. The Chinese iron ore market has transformed from a local market to a global market, making it more convenient for overseas mining, trading and other industrial customers to participate. Domestic and foreign customers can further engage in hedging, cross-border warehouse receipt pledge, capacity hedging and other businesses, reducing the impact of market uncertainties and achieving global industrial chain risk management.

　　The direct change brought about by international business to the market is the introduction of industry clients, including mines and traders. As of the end of April 2019, 125 overseas clients, including Glencore and Mercuria, have opened accounts in 12 countries and regions including Hong Kong, Singapore, the United Kingdom, Australia, and Japan. The overall transaction volume of overseas customers shows an increasing trend. In the first four months of 2019, the trading volume and holdings of overseas clients increased by 637% and 264% respectively compared to the early stage of internationalization from May to August 2018.

　　Regarding the changes in market participation structure after the internationalization of iron ore, Cai Yongzheng said that since May 4, 2018, the activity of iron ore has increased, and market participants have become more diversified, with many foreign institutions actively participating.

　　The relevant person in charge of Mercuria, an international trader involved in iron ore, stated that the good liquidity and functional performance of the Chinese iron ore market are the main reasons for their participation. To this end, the company has made careful arrangements and deployments, formed a dedicated team, passed the suitability review of specific varieties, and established internal control, risk management, information notification and other management systems in accordance with international rules. It has also opened an NRA account in China and prepared sufficient funds.

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