Iron-ore and thermal-coal swaps make debut

Yuan-denominated iron ore and thermal-coal swaps debuted on Monday in Shanghai as China, the biggest user of raw materials, races to become a global center for commodities trading.

The swaps, which are monthly, quarterly and yearly contracts, will complete the range of ore and coal derivatives currently available in China, according to the bourse. Iron ore futures and some steel products futures already exist in Dalian and Shanghai. Zhengzhou started thermal-coal futures in September last year.

The introduction of yuan-denominated swaps, similar to index-based contracts priced in dollars on Singapore Exchange Ltd, reflects China's efforts to boost domestic trading and exert more influence on the global market for iron ore and coal. The trade may also allow Chinese steelmakers to better manage risks through hedging, said Ma Kai, an analyst at China International Capital Corp.

"There'll be head-to-head competition since the new Shanghai swaps are very similar to the Singapore ones except the underlying currency and the index they choose to use," Ma said by phone from Beijing.

China, the world's largest coal producer and consumer, is forecast to import about 300 million metric tons of the fuel this year, with thermal coal making up about two-thirds of that total, Deng Shun, an analyst with ICIS-C1 Energy, said on Monday.

Thermal-coal-fired power generating capacity accounted for about 70 percent of China's total, according to the National Energy Administration.

Iron ore swaps for September delivery, the most actively traded contract in Singapore, lost 1 percent to $94.56 a metric ton on Friday, according to data from SGX AsiaClear, the largest clearer of the derivatives. Spot ore at the Chinese port of Tianjin fell 0.4 percent to $95.20 a dry ton on Friday, according to The Steel Index Ltd.

Bloomberg