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China's demand outlook for steel, iron ore reinforced at SGX event

London — The Singapore Exchange offered views supporting prices and seaborne trade in iron ore and coking at a recent event with clients in London.

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The seminar attracted 40 traders, banks, and funds, with invited speakers and exchange officials describing steel and steel raw materials supply and demand, economic outlook and trade observations, SGX said in a report Wednesday.

SGX said the views support stronger steel and steel raw materials prices.

The exchange heard from Mark Jackson, CEO of the Baltic Exchange, Colin Hamilton, a managing director for commodities research at BMO Capital Markets, ICBC Standard Bank Chief China Economist Jinny Yan, and Jeffery Yao, managing director from Profision Shipping Capital Management Ltd.

China's current pro-growth policies, and the aggressive build-out of state-sponsored social housing and population growth, along with the state sponsored Belt & Road Initiative's goals to build out infrastructure network around the region, may drive demand in the sector, SGX said.

Under President Xi Jinping, both short-term rates and long-term yields have started rising, while the issuance of government bonds, especially for local governments, have notably slowed, the note said. This may be helping support private sector investment and GDP growth.

Iron ore supply globally may have expanded faster in earlier years, consolidating the seaborne market.

"Prudent capex investments by iron ore miners are keeping supply volumes in check while a steeper cost curve benefits the low-cost majors," SGX said.

For coking coal, an anticipated recovery in Australian exports after Cyclone Debbie hit shipments a year ago may be impacted by rail operator Aurizon's ongoing dispute on regulated revenue.

"This could significantly affect prices amidst a Chinese clampdown on coking coal output and as India is set to become the largest coking coal importer by 2019," SGX said.

William Chin, head of commodities for SGX, and Janice Yap, iron ore product manager at the exchange, presented at the seminar.

SGX offers futures and derivatives clearing in iron ore, coking coal and dry bulk freight among several commodity and financial asset contracts.

The SGX expects that if China's INE crude oil contract -- which is for delivery to Shanghai and was launched on March 26 -- is successful, the next Chinese futures contract to be allowed direct foreign participation will be Dalian Commodity Exchange's (DCE) iron ore contract.

"This development will allow traders to benefit from both the informational value of institutional participation on the SGX, and the deep retail liquidity in DCE," SGX said.

"For the majority of market participants, this will largely be business as usual as onshore access is already in place via WFOEs [wholly foreign-owned enterprises], banks, or CFDs."

--Hector Forster,
--Edited by James Leech,