China will allow overseas investors to trade the steel-making ingredient iron ore on the Dalian Commodity Exchange, the latest move by Beijing to exert influence over the global pricing of raw materials.
China is the world’s biggest consumer of iron ore, importing around 1bn tonnes of the material from the seaborne market to feed the mills of its giant steel industry.
Allowing foreign players on to the exchange will help Dalian challenge the Singapore Stock Exchange, which has a widely-traded iron ore futures contract.
Iron ore derivatives are the second Chinese commodity market that Beijing has opened to overseas investors. An oil futures contract started trading on the Shanghai Futures Exchange last month, attracting interest from international commodity traders including Glencore and Trafigura.
The price of benchmark ore with 62 per cent iron content has fallen 10 per cent this year to $64.75 a tonne, in part because of a slow pick-up in demand since the Lunar New Year holiday in China.
“It’s very early days, although it could potentially lead to greater liquidity in iron ore futures,” said Paul Gray, Wood Mackenzie Research Director. “How that translates to the physical market for iron ore is unclear. It could potentially create more volatility but it really depends how participants use the contract – for hedging or for speculation.”