May record volume of iron ore swaps cleared on SGX

London, 1 June 2012

The volume of iron ore swap contracts cleared on the Singapore Exchange (SGX) in May surged to another all-time high, exceeding the previous record set in October 2011. According to an SGX NewsFlash today, over 7.67 million tonnes of swaps (with a nominal value of over US$1 billion) were cleared during May, representing an increase of 122% on the same month last year. SGX uses exclusively The Steel Index (TSI) 62% Fe iron ore fines reference price for settlement of its iron ore swap contracts.

The volume of ‘open interest’ on SGX also reached a new all-time high, peaking on May 30 at over 7 million tonnes for the first time since the contract was launched in 2009. Month-end open interest was also a record, standing at 12,375 lots (6.18 million tonnes).

TSI’s iron ore index is also used for the settlement of swaps and options on four other clearers worldwide, namely LCH.Clearnet (London), CME Group (Chicago), NOS Clearing (Oslo) and the Indian Commodity Exchange (ICEX).  Volumes cleared on these platforms in May have yet to be confirmed.

Oscar Tarneberg, TSI’s Senior Iron Ore Analyst, based in Shanghai noted: “The increase in swaps trading went hand in hand with a marked pickup in physical activity. TSI’s iron ore prices are widely used in index-linked physical contract price arrangements between miners, traders and Chinese steel mills. Some big price moves through the month and large hedges on the nearby months by major trading houses contributed to higher volumes”.

Iron ore prices in May trended downwards for most of the month, as Chinese steel mills ran down their inventories, before showing some gains over the final week. TSI’s 62% Fe reference price ended the month at US$134.80/dmt cfr Tianjin port, having dipped to a 6-month low of $129.90/dmt on 23 May – some 11% below the price on the first day of the month ($145.40/dmt) and the lowest level seen since early November 2011. Despite the late uptick, the May figure of US$136.27/dmt is the lowest monthly average since November last year.

Since their launch, more than 124 million tonnes of iron ore derivatives have been cleared basis TSI, with a nominal value of over US$18 billion. This includes over 10 million tonnes of options, which have seen a strong growth in liquidity over the past year. 95% of all iron ore contracts cleared since launch have used TSI’s prices for settlement.

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