SGX outlines need for risk management as Chinese iron ore buyers respond to margins, environmental norms

The world’s first high-grade iron ore derivative contract has provided the market with a more complete risk-management portfolio that reduces risks associated with different grades of the steelmaking raw material, Tan Say Liang, general manager of the Shanghai office of Singapore Exchange (SGX), said during a conference last month.

“China’s long-term aim to tighten regulations on emissions are pointing to increased demand for high-grade iron ore and thus the [need for] 65% Fe derivatives to hedge,” he said at the Fastmarkets MB iron ore conference in Beijing at the end of February.

Since SGX launched its 65% Fe iron ore swaps and futures in December last year, trading by 33 participants has totaled 3.65 million tonnes, according to the exchange.

More than half of the participants were Chinese mills or traders, indicating “demand from physical players,” Tan said.

Based on data from 2014 to early 2019, steel margins for steelmakers tend to be closely associated with the volatility in iron ore prices, Tan also said.

From 2017 to late 2018, Chinese mills’ margins were largely on the rise, with iron ore price volatility generally decreasing during that period. At the end of last year, when steel margins dropped, iron ore volatility started to trend higher, he added.

“Logically thinking, when profitability shrinks, mills would shift their focus from production rates to cost controls by means including hedging,” he told delegates, adding that iron ore volatility would probably stay high if mill margins were to be structurally lower this year.

SGX cleared 1.3 billion tonnes of iron ore swaps, futures and options in 2018, compared with 1.64 billion tonnes and 1.67 billion tonnes in 2017 and 2016 respectively, according to Tan.

The exchange cleared 162 million tonnes in November, a single-month high in 2018, before a rise in January 2019 to 179 million tonnes.

Between November 2018 and January 2019, about a quarter of SGX iron ore derivatives volume was from Chinese steelmakers or trading companies, while about one third was from financial participants, he added. Those compared with 16% and 35% respectively a year earlier.

What to read next
After a month-long consultation period, Fastmarkets is amending the below specifications, following no negative feedback from market participants and internal data analysis. The following changes will take place: The new specifications are as follows, with amendments in italics: MB-CU-0002 Copper grade 1 cathode premium, ddp Midwest US, US cents/lb Quality: Grade A 99.9935% min copper cathode conforming to LME […]
The publication of the affected prices was delayed for 50 minutes. The following indices were published late: MB-MNO-0001 Manganese ore high grade index, cif Tianjin, $ per dmtu MB-MNO-0002 Manganese ore semi carbonate index, 36.5% Mn, fob Port Elizabeth, $/dmtu MB-MNO-0003 Manganese ore semi carbonate index, 36.5% Mn, cif Tianjin, $/dmtu These prices are a part of the […]
Fastmarkets proposes to amend the specifications of its weekly price assessment for MB-STE-0037 steel rebar domestic exw Italy to better reflect the material traded in the market.
The global copper market has finally received the widely anticipated news that imports to the US will be tariffed from August 1. The finer details of the tariffs, including their scope, and whether key copper-exporting nations like Chile, Canada and Peru will be exempt, remain unclear.
The purpose of this review is to ensure that the index continues to accurately reflect prevailing market conditions. We welcome feedback from industry participants on potential amendments to the base specification. This consultation, which is open until August 9, 2025 seeks to ensure that our methodologies continue to reflect the physical market under indexation, in […]
Information came to light that mill buying offers had been adjusted for July following Fastmarkets’ settlement of these prices on that date, leading to an incorrect published assessment for the following grades: MB-STE-0789 Steel scrap No1 heavy melting, consumer buying price, fob Montreal, Canadian $/net ton was previously published at C$245 ($179.41) per net ton, a C$10 […]