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The Metal Bulletin Iron Ore Index will soon be provided on a daily basis, giving an accurate and up-to-date benchmark for both the clearing of iron ore swaps and physical pricing.
“The spot market into China for iron ore has rapidly matured and has become the market mechanism of choice for most industry participants, superseding the benchmark system,” said Metal Bulletin Iron Ore Index director Cameron Hunt.
“The liquidity and volume now visible in this market has allowed us to extend the coverage of our sophisticated weekly index methodology based on actual transactions to a daily calculation,” he explained.
The launch of the daily index comes after investment banks Deutsche Bank and Credit Suisse pioneered the market in over-the-counter iron ore swaps. Contracts amounting to in excess of ten million tonnes have now been traded, according to reports.
Last week, Morgan Stanley confirmed it had begun trading iron ore swaps, while inter-dealer broker Icap said it had launched an iron ore derivatives broking service. Goldman Sachs is also reported to be considering an entry into the market.
“There is a market appetite for a robust daily price index at a critical time in the development of the iron ore swaps market. Credit Suisse has been the leading developer in this market and this announcement will be welcomed by its customers,” said Kamal Naqvi, director, commodities at Credit Suisse.
Physical market participants have also been quick to adopt the MBIOI in their pricing, said Hunt.
“The launch of a credible and accurate daily price in the iron ore market will greatly aid pricing transparency in the market,” said Metalloyd trader Richard Shelley. “Metalloyd has been actively involved in the Chinese spot import market since 2001 and a daily reference price will be of significant use to us and our clients.”
The Singapore Exchange launched the first cleared over-the-counter iron ore contract last month, while LCH.Clearnet said it is set to begin clearing over-the-counter iron swaps this month.