Vale hails launch of SGX’s high-grade iron ore derivative contract

Vale has hailed the launch of a derivative contract by the Singapore Exchange (SGX) on Monday December 3 as a positive development for the high-grade iron ore market.

“The new 65% Fe derivative contract launched by SGX is a good move, and it shows interest in market for high-grade products,” Peter Poppinga, executive director ferrous minerals, said at at company investor day on Tuesday December 4.

Poppinga said that the derivative will provide a forward curve for the market and give customers the ability to hedge. 

SGX became the world’s first exchange to launch a high-grade iron ore derivative contract on Monday, following wide calls from the market for suitable risk management tools amid the widening and volatile grade spreads in the iron ore market.

The derivative contract is settled against Fastmarkets MB’s 65% Fe Iron Ore Index.

On the first day, 1,500 lots or 150,000 tonnes was traded and cleared, according to SGX data, with trading done in individual calendar months, calendar spreads, quarters and spreads to the 62% Fe iron ore derivative.

Participants that traded on the first day included Anglo American, Cedar Holdings, CITIC Metal, Fomento Resources, Gerald Metals, Giza International Hong Kong, Glencore, Goldman Sachs, Macquarie Bank, Mitsubishi RtM International, Prosperity Steel United, Theme International Trading SPC and Trafigura.

First-day trades were brokered by Bright Point International Futures, Clarksons Platou Futures, Freight Investor Services, GFI Group and Marex Spectron.

Fastmarkets MB’s 65% Fe Iron Ore Index stood at $83 per tonne cfr China on December 4, up $0.10 per tonne from the previous day.