SGX to launch new high-grade iron ore derivative

SGX today announced plans to launch a new high-grade iron ore derivative to meet the needs of the industry as the physical market evolves along different grade specifications.

Increased use of high-grade iron ore as China pursues environmentally friendly growth is creating demand for a new risk-management tool to help market participants better manage widening basis risks. The contract, designed in close consultation with market participants, will reference the 65% Fe Brazilian fines index, CFR Qingdao, provided by Fastmarkets MB. It is targeted for launch in December, subject to due regulatory process.

William Chin, Head of Commodities of SGX, said, "The seaborne iron ore market has continued to financialise and evolve since we cleared the world's first OTC iron ore swaps contract almost a decade ago. 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. We are delighted with the strong partnership with Fastmarkets MB in driving price transparency in a 65% contract that will add new liquidity to the bellwether 62% contract, allowing market participants to hedge and trade the grade differentials."

Christopher Ellis, Price Development Director (Metals & Mining) at Fastmarkets MB, said, "Fastmarkets MB is pleased to partner with SGX to bring to the market a new high-grade derivative settled against our 65% Fe Index. The increased volatility in intergrade spreads has led to broad market support for a high-grade iron ore derivative and makes it the next logical step in the evolution of the iron ore market."

Jyothish George, Head of Iron Ore of Glencore, said, "SGX's introduction of 65% futures and swap contracts is very timely given the increased volatility in the high-grade ore market. It allows market participants to hedge their exposure with a more precise contract."

Yang Wei, General Manager of Ningbo Steel International, said, "As the first derivative product on high-grade iron ore in the market, SGX's Iron Ore 65% derivatives contract complements their other iron ore contracts and provides greater correlation with price movements in the high-grade seaborne iron ore fines market. This allows us to hedge our high-grade iron ore exposure more accurately and also promotes market liquidity."

Luiz Meriz, Global Director for Iron Ore Sales at Vale, said, "It is a natural development for the iron ore market and a welcome initiative from SGX. As mills are actively seeking high-grade iron ore to enable productivity gains and lower emission levels, the launch of the 65% Fe derivative provides an effective risk management tool for the industry."