October sets new record for iron ore swap volumes, as spot prices collapse
London. 2 November 2011
The volume of iron ore swap contracts cleared in October surged to another all-time high, smashing the previous record set in August. Over 9 million tonnes of swaps and options with a nominal value of around US$1.4 billion were cleared during October, with The Steel Index (TSI) 62% Fe iron ore fines reference price used for settlement.
The majority of contracts were cleared on the Singapore Exchange (SGX): 15,443 lots (7.7mt) in October. This represented an increase of more than 80% on its previous monthly record in August. In addition, the volume of ‘open interest’ on SGX reached a new all-time high of 10,488 lots on 28 October, equivalent to over 5.2mt.
LCH.Clearnet also enjoyed a record month with 0.9mt of iron ore swaps cleared basis TSI, more than double its previous highest monthly volume.
“The surge in iron ore swaps trading volumes in October reflects the increased price risk in the physical market,” comments Oscar Tarneberg, Senior Analyst for TSI in Asia. “For most of the year prices have held relatively steady in the $160-180/dmt range but, since peaking on 7 September, the 62% Fe iron ore price lost 35% in value. With prices falling so precipitously, swaps offer physical participants a tool to hedge against the impact of sharp price movements and uncertainty”.
Iron ore prices in October fell at the steepest rate since TSI began compiling its index in late 2008, with daily falls of up to $10/dmt. TSI’s 62% Fe reference price ended the month at US$118.40/dmt cfr Tianjin port, having dipped to a low of $116.90/dmt on 28 October – some 32% below the price on the first day of the month ($171.30/dmt) and the lowest level seen since late December 2009. These falls brought the October 2011 monthly average to US$150.43/dmt – 15% lower than September’s average (US$177.23/dmt). TSI’s monthly average prices are increasingly used as the basis for index-linked physical contract price arrangements between miners, traders and steel mills, in preference to lagged quarterly averages which can show large deviations from the current spot price.
Since their launch, more than 70 million tonnes of iron ore financial contracts have been cleared basis TSI, with a nominal value of around US$11 billion. 95% of all iron ore contracts cleared during the past 2 years have used TSI’s prices for settlement.
Iron ore financial contracts using TSI for settlement are also cleared by the CME Group (Chicago), NOS Clearing (Oslo) and the Indian Commodity Exchange (Mumbai).
The majority of contracts were cleared on the Singapore Exchange (SGX): 15,443 lots (7.7mt) in October. This represented an increase of more than 80% on its previous monthly record in August. In addition, the volume of ‘open interest’ on SGX reached a new all-time high of 10,488 lots on 28 October, equivalent to over 5.2mt.
LCH.Clearnet also enjoyed a record month with 0.9mt of iron ore swaps cleared basis TSI, more than double its previous highest monthly volume.
“The surge in iron ore swaps trading volumes in October reflects the increased price risk in the physical market,” comments Oscar Tarneberg, Senior Analyst for TSI in Asia. “For most of the year prices have held relatively steady in the $160-180/dmt range but, since peaking on 7 September, the 62% Fe iron ore price lost 35% in value. With prices falling so precipitously, swaps offer physical participants a tool to hedge against the impact of sharp price movements and uncertainty”.
Iron ore prices in October fell at the steepest rate since TSI began compiling its index in late 2008, with daily falls of up to $10/dmt. TSI’s 62% Fe reference price ended the month at US$118.40/dmt cfr Tianjin port, having dipped to a low of $116.90/dmt on 28 October – some 32% below the price on the first day of the month ($171.30/dmt) and the lowest level seen since late December 2009. These falls brought the October 2011 monthly average to US$150.43/dmt – 15% lower than September’s average (US$177.23/dmt). TSI’s monthly average prices are increasingly used as the basis for index-linked physical contract price arrangements between miners, traders and steel mills, in preference to lagged quarterly averages which can show large deviations from the current spot price.
Since their launch, more than 70 million tonnes of iron ore financial contracts have been cleared basis TSI, with a nominal value of around US$11 billion. 95% of all iron ore contracts cleared during the past 2 years have used TSI’s prices for settlement.
Iron ore financial contracts using TSI for settlement are also cleared by the CME Group (Chicago), NOS Clearing (Oslo) and the Indian Commodity Exchange (Mumbai).
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