DCE calms iron ore futures with trading limits, higher fees

According to a DCE notice issued late on November 6, trading limits on its iron ore contracts for delivery in each month over January-May 2024 are reduced to 1,000 lots/day, while those for other months stay unchanged at 2,000 lots/day. The limits include those on opening long and short positions and will be effective from the night-time trading session of November 7 and from November 8.

Previously, only the daily trading limits on ore contracts for next January and May delivery had been restricted, as reported.

Moreover, on Monday the exchange also announced that it was raising the intraday trading fees for the same five contracts from 0.01% of daily trading turnover to 0.02%, effective from the night trading session on November 8.

Again, the DCE gave no reason for introducing the measures, but market players said the exchange was clearly demonstrating its determination to curb speculation in the iron ore futures market after contract prices had climbed even higher in recent days.

The upward climb in Chinese iron ore futures gained new momentum last week after the central government had pledged more economic stimulus measures in coming months, an announcement that had fired the country's spot and derivatives markets for commodities with new optimism, Mysteel Global noted.

The most-traded iron ore contract in Dalian for January delivery closed the daytime session on November 3 at Yuan 924.5/dmt ($127.2/dmt) – higher for the nineth consecutive trading day – only to slip back slightly on Monday afternoon before the DCE's new curbs were announced.

Meanwhile, during Tuesday's daytime session, the last session prior to the extended limits taking effect, the January contract softened by 0.48% from the settlement price on November 6, to close at Yuan 923.5/dmt on November 7.

Still, the current price above Yuan 900/dmt is regarded by many market pundits as a rather high level, Mysteel Global noted.

"For now, iron ore prices in China's spot and futures markets may lack the necessary strength to perform as well as they did before, because abnormally high prices of the commodity will trigger new regulations from the DCE or National Development and Reform Commission," a ferrous futures analyst in Shanghai remarked.

Moreover, iron ore demand in the country will decline because of the seasonal fall in steel consumption in winter when lower daytime temperatures or snowy weather hamper outdoor construction work, according to her.

For example, Heilongjiang, Jilin and Liaoning provinces in Northeast China will be blanketed by snow during the coming three days, according to the latest forecast from the National Meteorological Center on November 7. Mysteel's survey found that construction on some outdoor building sites in these three provinces had already been halted because labourers and logistics firms delivering materials faced travel difficulties due to the heavy snow drifts and freezing weather.

Written by Lea Li, liye@mysteel.com

Edited by Russ McCulloch, russ.mcculloch@mysteel.com