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Singapore Exchange (SGX) will introduce two SGX Iron Ore CFR China (58% FE Fines) derivatives that will be separately cash settled against (1) an aggregate of the Metal Bulletin MBIOI 58% and 58% Premium indices; and (2) the TSI Iron Ore 58% index, in early 2015, subject to regulatory approval. In consultation with the industry and in-depth market research, the new swaps and futures contracts aim to provide a more effective hedging instrument for iron ore and steel participants in the global seaborne iron ore 58% FE fines market which has grown to an estimated 300 million tonnes a year.
Since the launch of the world’s first SGX Iron Ore CFR China (62% FE Fines) swap in 2009, SGX has introduced iron ore futures, options-on-swap and options-on-futures based on iron ore 62% FE Fines to provide participants with more hedging and trading flexibility. The strong industry support and active trading activity from trading companies, steel mills, banks and hedge funds has made SGX the home of international iron ore derivatives. Price volatility in the past year has heightened derivatives trading activity with 2014 annualized volumes standing in excess of 500 million tonnes, which is more than 50% of the underlying physical market.
“We are glad for the new 58% Fe contract that will be added to SGX's comprehensive and ever-growing iron ore product suite. We can now hedge more transactions at lower basis risks,” Gabriel Wang, Director, H&C S Holdings Pte Ltd.
"With the spot market for lower-grade products growing ever larger, the introduction of a high-LOI 58% futures contract is very timely. The new contracts will offer traders, producers and end users better options for price risk management, and should build on the great success of the 62% futures contract,” said Henrietta Lee, Managing Director of Caravel Metallurgical Limited.
