SGX’s high-grade iron ore derivatives get warm reception at launch

The Singapore Exchange’s (SGX) 65% Fe iron ore derivatives registered trades on the day of their launch on Monday December 3.

A total of 800 lots – or 80,000 tonnes – of futures contracts had traded by 10am Singapore time.

One of these trades involved miner Anglo American, trading company Fomento, and brokerage GFI Group, market sources said, while another involved trading companies Gerald Metals and Trafigura, as well as brokerage FIS, sources added.

Both trades involved 100 lots each of the January and February contracts, with the spread between the traded prices for the two months at $1 per tonne.

Clarksons Platou, a brokerage, was also involved in trades concluded on Monday morning.

“As a high-grade producer, we believe the SGX 65% Fe iron ore contract will enable more accurate risk mitigation for the more volatile and high-grade products,” Andrew Glass, head of iron ore trading at Anglo American, told Fastmarkets MB on Monday.

“Further, given the market’s shift in demand to high-grade mill feedstock, the advent of a high-grade derivative contract is a welcome development for industry participants,” he added.

Michael Syn, the SGX’s head of derivatives, said on Monday that Iron ore had “become Asia’s first truly global commodity, increasingly following in the footsteps of the oil complex in terms of size and economic importance.”

“With the high-grade contracts, we are delivering access tools to bridge domestic pricing in China – iron ore’s most important market – to an international benchmark,” he added.

The SGX’s high-grade iron ore derivatives, settled against the daily MB 65% Fe Iron Ore Index published by Fastmarkets MB, were launched in response to calls from market participants for efficient risk-management tools to manage their exposure to this segment of the steelmaking raw materials market.

“A high-grade contract is an important addition to our iron ore suite, backed by strong market interest reflecting a structural shift in China’s environmental policy,” William Chin, the exchange’s head of commodities, said when the derivatives were first announced.

Jonathan Chance, head of iron ore at GFI, had told Fastmarkets MB in October that the non-linear differentials between the 65% and 62% Fe grades of iron ore and the continuing volatility of the premium for higher-grade materials had made risk-hedging increasingly hard.

Chance saw the SGX’s high-grade derivatives as effective tools to manage that risk.

Other market participants view the launch of the high-grade iron ore derivatives as the next stage in the evolution of the iron ore market and one that is expected to underline the financialization of the steelmaking raw material.

Fastmarkets’ MB 65% Fe Iron Ore Index stood at $82.30 per tonne cfr China last Friday November 30, down $0.10 per tonne from a day earlier.

[Editor’s note: This article was amended after publication to include comments from the SGX’s head of derivatives Michael Syn.]

Steel raw materials editor Deepali Sharma and index manager Peter Hannah will be discussing the new SGX 65% Fe derivative contract in a live webinar on December 11. They will examine how changes in the iron ore market have prompted the need for this high-grade derivative, the opportunities the contract offers and the methodology behind our iron ore index. Register here for Fastmarkets MB’s SGX 65% Fe derivative contract webinar.