Brazilian miner Vale’s arm in China, Vale of Brazil Metals (Shanghai), has signed a contract with Shandong Laigang Yongfeng Trade, with the iron ore futures price of Dalian Commodity Exchange (DCE) used as a benchmark in the deal. This is the first time an international miner has concluded a spot deal based on an iron ore futures price in China, according to the DCE statement.
Vale has also sold Brazilian blend fines to Shandong Laigang Yongfeng Trade, with the material to be delivered to Qingdao Qianwan Port.
The launch of trading based on futures prices signals a shift in suppliers’ focus from sales under long-term contracts to portside trading in China. It will increase the influence of futures prices and will help market participants to deal better with risks. “Basis trading is very flexible, and it offers an effective instrument for price risk management and RMB pricing. As port trade and RMB pricing are getting increasingly popular, basis trading can enrich the pricing patterns for spot trades,” said a Vale official. In 2018, Vale’s RMB-bases sales totaled 18 million mt of iron ore.
The DCE sees the iron ore futures internationalization as a chance to build the iron ore RMB pricing benchmark with global representativeness in China.
On November 15, iron ore futures prices at DCE closed at RMB 612/mt ($87.4/mt), up RMB 19/mt ($2.7/mt) compared to the prices settled on November 14.
