The Steel Index reports a record number of iron ore swaps took place in August as prices plummeted.
According to The Steel Index (TSI), the volume of iron ore swaps cleared on the Singapore Exchange (SGX) in August surged 42 percent on July to 14.88 million metric tons. The level of open interest on SGX also exceeded 10 million metric tons (20,000 lots) for the first time on Aug. 30.
TSI-based iron ore options fared similarly with the volume cleared on the CME Group exceeding 2.3 million metric tons, more than 15 percent greater than the previous record level seen in March 2012.
The highwater mark of 1 million metric tons cleared in a single day on SGX (first reached on July 31, 2012), became commonplace during the last couple of weeks in August, occurring no less than five times. When swaps and options volumes cleared on other exchanges are taken into account, there were eight days in August where more than 1 million metric tons of iron ore TSI-based derivatives were transacted.
Meanwhile, iron ore spot prices slumped, with TSI’s benchmark 62 percent ferrous fines price for Chinese imports CFR Tianjin port declining to a 34-month low of $88.70 per dry metric ton on Aug. 30, 2012, a decline of $28.70 per dry metric tons from opening prices at the beginning of the month. However, August ended with the price rising by $0.70 per dry metric ton on the last day of the month. This was the first rise since Aug. 14, 2012; the average daily fall had been 2.2 percent since that date.
According to TSI, August marked the fourth consecutive month-on-month fall, with TSI’s 62 percent ferrous fines price averaging $107.80 per dry metric ton during the month, down 15.7 percent on the July average and 27 percent lower than the average for April 2012.
John Wright, a broker for iron ore markets at GFI in London, says, “This year we are seeing a lot more physical players using iron ore swaps as a hedging instrument. The physical players are now consistently using these risk management tools to manage their price exposure, resulting in added liquidity and depth to the forward curve. We expect this increase in volumes to continue and as a result are now seeing more interest in both scrap and steel derivatives as well.”
TSI’s iron ore index is used for the settlement of swaps and options by the clearing houses SGX (Singapore), CME Group (Chicago), LCH.Clearnet (London), NOS Clearing (Oslo) and the Indian Commodity Exchange (Mumbai).
The total volume of iron ore swaps and options contracts cleared on these exchanges in August hit a new all-time monthly record of over 17.8 million metric tons, including more than 2.3 million metric tons of options cleared on the CME.