China Economic Review

Investors step back from China’s iron ore futures contracts

Demand for China’s iron ore futures contracts have fallen to a three-year low amid stagnant prices and lagging trade volumes, Reuters reports.

Since being made available to overseas traders in May as part of an effort to “internationalise” some of China’s most valuable commodity-backed securities, iron ore futures traded on the Dalian exchange have almost halved.

Outstanding contracts held by traders – known as “open interest” – fell to 854,298 lots on Monday, the lowest since March 2015 and almost a third of May’s high of 2.4 million.

The drop suggests that, despite opening the market to foreign investors, there is still an oversized influence of local speculators who quickly flee once prices stagnate.

“Iron ore prices have been really flat in recent months. Therefore industrial investors have less hedging demand, while speculators have less interest to invest,” an official for the Dalian exchange told Reuters.