Cranes load iron ore at a port in Nantong, East China's Jiangsu Province. File photo: VCG

The Dalian Commodity Exchange (DCE), a major commodity bourse in China, launched iron ore options on Monday. The move comes as the world's top steel-producing country - also the largest consumer of raw materials for steelmaking - offers more risk-hedging tools for iron ore traders and steelmakers. 

The iron ore options will complement the DCE's iron ore derivatives offerings, the Economic Daily reported on Monday, citing Li Zhengqiang, chairman of the exchange.

The DCE launched iron ore futures contracts in October 2013 and opened those futures to overseas institutional investors in May 2018. The bourse announced in February that it would to allow foreign individual investors to trade iron ore futures.

The yuan-denominated iron ore futures are also expected to push the internationalization of the Chinese currency, Li said.

Iron ore options can be a lower-risk way - compared with straight futures contracts - for traders and steel mills to invest in the futures market, adding to their price management and risk-hedging tools, Xu Xiangchun, information director with iron and steel industry consultancy mysteel.com, told the Global Times on Monday.

Buoyed by the launch, the first for industrial commodities on the DCE, the most-active iron ore futures contract hit the daily ceiling of 6 percent intraday on Monday. 

Steel stocks were also given a boost, with the steel sector posting a gain of more than 2 percent on the Chinese mainland stock market on Monday, outperforming the flagship Shanghai Composite Index, which closed up 0.08 percent.

The debut of iron ore options also signals the nation is ramping up efforts to build derivative portfolios.

Earlier this year, the Shanghai Futures Exchange commenced copper options trading. In 2018, the nation launched white sugar and soybean meal options.

Futures contracts for a wider variety of commodities such as steel scrap futures are in the pipeline, according to Xu.

In another major move, the Shenzhen Stock Exchange over the weekend unveiled rules for the pilot trading of stock options. Market observers believe this will pave the way for MSCI to further increase A-share weighting in setting its global benchmarks. 

During the New York-based index provider's most recent public consultation on the inclusion of A shares from September 2018 to February 2019, investors said that access to hedging and derivatives instruments is among the concerns needed to be resolved before any consideration of further inclusion, a spokesperson for MSCI who preferred to be anonymous told the Global Times.

"Index futures and options contracts are critical risk-management tools for global investors, particularly for complex, deep and varied equity markets such as those in China," the spokesperson said.
Newspaper headline: Dalian launches iron ore options