DCE limits iron ore futures trading after prices jump

China's Dalian Commodity Exchange (DCE) announced on Wednesday night that it will impose a trading limit on some iron ore futures contracts, effective from the night-time trading session of April 25. This move is in response to the sharp rises in iron ore futures prices and to prevent speculative trading, market sources believe.

The DCE said it will restrict the trading (including that for both long and short positions) to 500 lots/day for iron ore futures contracts for May and September delivery, while those for other months stay unchanged at 2,000 lots/day. The limits target non-futures company members or clients, while trading for hedging purposes or for similar purposes is exempt from the restrictions.

China's iron ore futures prices have been strengthening firmly since early April, driven by the central government's frequent introduction of stimulus policies for the domestic economy and industries, Mysteel Global noted. Meanwhile, the faster decline in steel inventories at both steelmakers and traders this month also brightened the outlook for steel demand held by market participants, as reported.

DCE iron ore futures price

On April 24, the most-traded iron ore contract for September delivery on the DCE closed at a more than one-month high of Yuan 888/dmt ($125/dmt), gaining a marked 3.1% from the settlement price on the prior day.

The sharp rise in futures prices also buoyed iron ore spot prices and drove up the prices of finished steel products, market sources observed. On Wednesday, Mysteel PORDEX 62% Australian Fines in Qingdao rose by 3.3% on day to reach Yuan 897/wmt FOT and including the 13% VAT.

"The DCE's latest move is an attempt to prevent some traders from taking advantage of the current bullish sentiment to manipulate the market," an iron ore analyst based in Shanghai said.

After all, no significant recovery has taken place in the fundamentals of China's ferrous market so far, which means the support for steel prices is unstable, Mysteel Global noted. And the continuous rises in iron ore prices have again threatened profit margins among Chinese steelmakers this week, Mysteel's survey showed.

"The iron ore prices (in China) may continue to rise amid the positive mood, but the room for further increase is limited," another market analyst in Shanghai said. "The fundamentals are likely to exert pressure on the ore prices and drag them down in the near future," she predicted.

Written by Anthea Shi, shihui@mysteel.com

Edited by Alyssa Ren, rentingting@mysteel.com