Financial Services

Iron Ore Swap Trade

ICBC Iron Ore Swap Trade

1. Iron Ore Swap Trade

Iron Ore Swap Trade refers to the sale and purchase of commodities at agreed prices and quantities between the customer and ICBC at one or more specified dates in the future. At each specified date, the trade shall be conducted in the form of cash settlement (not physical delivery) according to the difference between the agreed price and the settlement price (Usually the average monthly price).

2. Requirements for Participating in Iron Ore Swap Trade

2.1 Non-financial Institutions legal person, Enterprise legal person, Institutional Units and Social Groups Legal Person that are legally registered in China,

2.2 There is a real demand, the relevant underlying assets or underlying liabilities of the applied derivatives transactions must be authentic,

2.3 Qualified or authorized to conduct derivatives transactions,

2.4 Understand the risk of derivatives trading and are willing to bear potential losses,

2.5 No bad credit record or other major bad record in the bank,

2.6 Open an accounting account at ICBC that meets the requirements of derivatives trading.

3. Iron Ore Swap Trade Process

3.1 Customer Evaluation: The client shall provide the official permission or authorization of the superior administration department or internal authorized institution (such as shareholders' general meeting, parent company, board of directors, head office, etc.) that agree to carry out the derivatives trading, prove its qualification and rights to engage in derivative business,and accept the audit of its real needs from ICBC. At the same time, clients should cooperate with ICBC to conduct a comprehensive assessment of its financial derivative business experience, internal management control and etc.

3.2 Sign the general agreement: After meeting the conditions for the entry of ICBC's commodity trading and is assessed to have the corresponding risk tolerance ability, it is required for the client to sign the "ICBC Agency Risk Management Business Agreement" with ICBC before conducting the transaction to clarify the rights and obligations.

3.3 Submit the application: Clients can submit transaction applications on a transaction to transaction basis.

3.4 Guarantee measures: Customers can either pay by margin deposit,or by taking special credit line for financial derivative transactions.

3.5 Close a transaction: ICBC will submit a transaction confirmation to the client to confirm the closing of the transaction. In the duration of the swap business, when outstanding balance of margin is below the margin maintenance, the client shall follow the contract to make margin payments.

4. Trading Channels and Trading Hours

You can trade at the counter or online.

4.1 At the Counter:

Monday-Friday,  business hours of the respective branches.

4.2 Online Banking:

Monday, 09:00 ~ 24:00;

Tuesday to Friday, 00: 00 ~ 02: 00; 09: 00 ~ 24: 00;

Saturday, 00: 00 ~ 02: 00

In the event of major international market holidays, the national holidays and rest days, or unpredictable, unavoidable force majeure events such as natural disasters, wars or international political, economic, emergency events, or communication system failure, power interruption, market stoppage and financial crisis, changes in national policies and etc., ICBC may suspend all or part of the commodity trading. Well inform our customers in advance through the official website (http://www.icbc.com.cn) or other possible means as far as possible

5. Iron Ore Swap Case

Enterprise A is a steel company that needs iron ore as raw material. Enterprise A plans to import 10,000 tons of iron ore in three months. To avoid the risk of rising iron ore prices in three months, the company makes an iron ore swap deal with ICBC.

The current price of iron ore spot is 60 US dollars / ton. Enterprise A and ICBC agreed to a swap price of 60 US dollars / ton, the delivery will happen in three months. After the iron ore price in March rose to 70 US dollars / ton, swap settlement price became 70 US dollars / ton. ICBC paid enterprise A the price difference between swap settlement price and the agreed swap price, 10 US dollars / ton. In the spot market, firm A suffered a loss of $ 100,000 from rising iron ore prices but earned $ 100,000 from a swap transaction with ICBC, successfully avoiding the risks posed by the rising iron ore prices. 

 

 

6. Entry for Iron Ore Swap Trade