SGX’s high-grade iron ore derivatives set for Dec 3 launch

The Singapore Exchange (SGX) will launch high-grade iron ore derivatives settled against the daily MB 65% Fe Iron Ore Index published by Fastmarkets MB in the first week of December.

“The SGX MB Iron Ore cfr China (65% Fe Fines) over-the-counter swap contracts for clearing and the futures equivalent for trading and clearing will be introduced on Monday December 3,” the exchange said on Friday November 16.

The final settlement price for the contracts will be the arithmetic average of Fastmarkets’ MB 65% Fe Iron Ore Index in the expiring contract month, rounded to two decimal places, the it added.

SGX, which accounts for bulk of the ex-China iron ore paper market, first announced plans for the high-grade derivatives last month following market feedback suggesting a need for better risk-management tools for the high-grade segment.

Several key market participants have endorsed the exchange’s decision, describing it is as the next step in the evolution of the iron ore market.

The need for the derivatives stems from the Chinese government’s increased efforts to protect the environment and steel mills’ robust margins that have underlined strong demand in the physical market for high-grade ore in China.

These factors have resulted in volatile and wide spreads between the different grades of iron ore, which in turn make it difficult for market participants with exposure to the high-grade segment to manage their risks effectively.

The MB 65% Fe Iron Ore Index stood at $94.70 per tonne cfr China on Thursday November 15, up from $94.40 per tonne cfr China a day earlier.

Its month-to-date average stood at $96.21 per tonne cfr China on the same day, up from $82.17 per tonne cfr China in November last year.

Iron ore grade differentials may narrow over the next few months, with steelmaking restrictions in China appearing to be less stringent than the last winter heating season, but the longer-term outlook on Chinese acceptance of higher-grade ore remains positive.

Our team - including 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. Click on this link to register: Fastmarkets MB’s SGX 65% Fe derivative contract webinar.

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