SGX launches first high-grade iron-ore derivatives

SGX ticker at Shenton Way building in Singapore; taken October 2018.SGX ticker at Shenton Way building in Singapore; taken October 2018.

Singapore Exchange said on Monday that it launched high-grade iron-ore derivatives, the world’s first, to meet demand for new risk management tools as China makes structural changes to its environmental policies.

“China’s pursuit of environmentally friendly growth is spurring increased use of premium iron ore for steelmaking in the country, the world’s largest consumer of commodities,” SGX said. “As the physical market evolves along different specifications, today’s launch offers participants the opportunity to trade grade differentials and manage widening basis risks.”

The SGX MB iron Ore CFR China swaps and futures will reference the 65 percent FE Brazillian fines index, CFR Qingdao, which is provided by Fastmarkets MB, it said in a filing to SGX.

SGX said the new contracts would complement its existing 62 percent FE derivatives.

Michael Syn, SGX’s head of derivatives, said that iron ore was following in oil’s footsteps as its importance grows in size and economic importance.

“With the high-grade contracts, we are delivering access tools to bridge domestic pricing in China – iron ore’s most important market – to an international benchmark,” Syn said.

SGX has nearly 100 percent market share for international cleared iron ore and coking coal derivatives, and it was aiming to offer a “virtual steel mill” value chain for steel raw materials and freight, the filing said.

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