SGX’s high-grade iron ore derivative draws broad participation in second week of trading

Interest in Singapore Exchange’s (SGX) high-grade iron ore derivative was robust in the second week of trading, with 7,000 lots traded and cleared by 5.53pm Singapore time on Friday December 14.

This accounts for 700,000 tonnes traded and cleared this week as of 5.53pm Singapore time, according to SGX data.

Trading was done in each calendar month from January 2019 to June 2019 this week, in line with the trend seen the previous week.

Market participants have hailed the launch of the derivative, which is settled basis Fastmarkets MB daily 65% Fe iron ore index, as it provides those with high-grade segment exposure with an effective and much-needed risk management tool.

“The SGX’s derivative contract continues to go from strength to strength with market participation evolving and improving daily,” Matthew Kilgour, iron ore derivatives broker at SSY Futures told Fastmarkets MB.

“For the first time this week we have seen participants use the contract as an effective hedging tool, with speculators also joining the market to increase liquidity further,” he added.

“With greater liquidity and understanding of the forward curve on high grade product, the menu of hedging opportunity for physical producers and consumers continues to grow,” he added.

More high-grade products are expected to be priced basis the 65% Fe iron ore index in the future with a more seamless risk management option now available through the derivative contract, they added.

Last week, Vale said that it will switch its 2019 pellet contracts basis to a 65% Fe iron ore index, away from the 62% Fe iron ore index.

Fastmarkets MB daily 65% Fe iron ore index stood at $85.30 per tonne on Friday December 14, up from $83.50 per tonne a day ago.