***SPOTLIGHT: Stemcor and Macquarie trade HRC China swap, second iron ore option clears

Stemcor and Macquarie Bank have traded an over-the-counter (OTC) cash-settled Chinese hot rolled coil swap, brokered by Freight Investor Services (FIS).

Stemcor and Macquarie Bank have traded an over-the-counter (OTC) cash-settled Chinese hot rolled coil swap, brokered by Freight Investor Services (FIS).

The cash-settled swap is the first to be cleared by LCH.Clearnet, according to FIS, which has also been quoting a forward curve for hot rolled coil deliveries in northern and southern Europe since mid-October.

The first trade, done at $650 per tonne ex-mill and tied to deliveries in November, was for less than 10,000 tonnes. But there has been a great deal of interest in derivatives for flat rolled products in China and FIS is building up to broker more significant volumes, according to steel derivatives broker Arthur Worsley.

“With the structural changes taking place in the steel industry right now, these contracts offer an opportunity to hedge production costs at a time when input costs have become more volatile,” he said.

Stemcor has been quicker than most to embrace the use of derivatives in the ferrous sector. The company recently traded the first OTC iron ore swap to be cleared through the Chicago Mercantile Exhcnage’s Clearport facility.

Citigroup took the other side.

The company has been active in trading swaps for a variety of products since Stemcor Risk Management (SRM) entered the OTC market in 2008.

“[Chinese hot rolled coil swaps] have the potential to be very useful for traders of steel products as well as for producers who need to hedge their exposure,” said SRM director Jean-Luc Fiorenzoni.

And, while market players make exploratory trades in the OTC market for hot rolled coil, the marker for iron ore swaps has been growing.

Three weeks ago a leading investment bank wrote the industry’s first cleared iron ore option. Brokers said a leading Switzerland-based trader took the other side of the deal, which was for 180,000 tonnes.

Since then, another option has been cleared through NOS, this time for 360,000 tonnes.

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