Once the huge iron ore market is completely financialized like other commodities, the impact will spread to the global steel industry chain. This momentum now seems unstoppable.

On January 29, India, the world's third largest iron ore supplier, officially launched iron ore futures. The Indian Commodity Exchange (ICEX) and the Multimodal Commodity Exchange of India (MCX) jointly launched the Ore Futures (IOF) with the ore index TSI as the settlement price. As the first iron ore futures in the world, the birth of IOF means further financialization and short-term pricing of iron ore market.

Accelerating Financialization of Iron Ore Market

It is reported that India's iron ore futures will be delivered monthly, with 62% of the standard grade of iron ore as the delivery target, 100 dry tons of iron ore as the trading unit, the initial margin ratio of 8%. The basic unit of futures delivery stipulated by MCX is 20,000 dry tons, but the unit of ICEX is 5,000 dry tons. The settlement price used by ICEX is the TSI index, which tracks the CIF price of Tianjin Port iron ore converted to 62% grade.

Chandel, chief executive of ICEX, said that the futures will not only "provide a benchmark for global iron ore futures trading", but also "become an important reference for spot and forward markets".

India is the third largest iron ore supplier in the world. In 2010, the country produced 257 million tons of iron ore, of which 115 million tons were exported. Indian mines account for about 15% - 20% of China's total imported mines, and occupy a very important position in China's spot market.

But in recent years, with India's strong economic growth, the country's ore demand is also rising. The Indian government has continuously raised the threshold for ore export, banning some ports from exporting ore, suspending multiple iron ore mining, raising the export tariff by 20% and raising the transportation cost of iron ore. Stimulated by multiple factors, spot iron ore prices have been rising steadily since the end of 2010. At present, the price of 63.5% grade Indian fine ore outer plate has exceeded 190 US dollars/ton, which is in the highest range in history.