SGX Iron Ore Swaps Volume at Record in November as Demand Gains Share Business ExchangeTwitterFacebook| Email | Print | A A A
By Jesse Riseborough
Dec. 3 (Bloomberg) -- Singapore Exchange Ltd.’s iron ore swaps volumes jumped to a record last month on increased demand from steel mills, traders and shipping companies in Asia.
Cleared contract volumes rose to almost 1.5 million metric tons in November, SGX AsiaClear said yesterday in an e-mailed statement. The value of the contracts was a record $140 million, SGX told Bloomberg News in an e-mail today.
Cash prices jumped 14 percent in November as demand in China, the biggest buyer of the ore, gained and the cost of shipping increased. SGX and rival exchanges in the U.S. and Europe are competing for business as Rio Tinto Group and BHP Billiton Ltd., the world’s second and third-biggest exporters, boost sales on the spot market to benefit from higher prices.
Iron ore swaps for settlement in December are trading at $100.15 a metric ton, according to SGX over-the-counter prices. SGX has cleared more than 5.4 million tons since starting its swaps market in April, it said. The price of ore for immediately delivery fell 0.4 percent to $99.20 yesterday, according to The Steel Index prices.
Intercontinental Exchange Inc., known as ICE, the second- largest U.S. futures market, started iron ore swaps trade yesterday. LCH.Clearnet Group Ltd., Europe’s largest securities clearinghouse, started clearing over-the-counter trades in iron ore in June. London Dry Bulk Ltd. last month said its first ore swap contract was traded on its LDB-X electronic platform.
Four Decades
The four-decade old iron ore annual benchmark price system was fractured this year after Chinese steelmakers and the world’s biggest suppliers failed to reach a price accord. Global iron ore trade is worth about $160 billion a year. Traditionally about 80 percent of iron ore has been sold on the annual benchmark, according to Freight Investor Services Ltd.
The size of each swap contract on the SGX is 500 metric tons and is cash-settled based on the average of The Steel Index iron ore price in the expiring month. This price is for 62 percent iron grade ore which comprises most of the ore shipped from Australia, the world’s biggest exporter.
Counterparties on the SGX include private steel mills, iron ore traders, Chinese shipping companies, traders and producers from other parts of Asia as well as some European participants, according to SGX.
The volume in November was 60 percent more than the previous record set in August, SGX said in the statement yesterday.
An iron ore swap is a financial derivative used by some market participants as a hedging instrument to manage price fluctuations in the cash market.
To contact the reporter on this story: Jesse Riseborough in Canberra at [email protected]. Last Updated: December 2, 2009 21:07 EST
