Complex iron ore markets encourage derivatives use

The complexities of international iron ore supply and Chinese steel mill demand have encouraged market participants to increase use of derivative contracts.

As the one-year anniversary approaches of the launch of Singapore Exchange’s (SGX) 65% Fe iron ore derivative contract, it is clear that the contract is fulfilling its purpose of providing the market with a seamless price risk management tool.  The contract, launched on December 3, 2018, registered record open interest and monthly traded volumes in July 2019, seeing participation from a diverse set of physical and financial stakeholders in the iron ore value chain. Open interest for the contract, which is settled on the basis of Fastmarkets’ index for iron ore 65% Fe Brazil-origin fines, cfr Qingdao, was 1.95 million tonnes on July 30, with traded volumes reaching 2.12 million tonnes in July, according to SGX data. Volume and open interest stayed at similar levels in August. The contract has been traded by more than 50 market participants since launch. These include physical hedgers, bank traders and financial market participants, according to the...

Published

Deepali Sharma

October 04, 2019

12:08 GMT

Singapore