TSI Market Watch
April 4, 2014
Iron Ore Futures and Derivatives Trading Booms as Spot Prices Slump
The volume of iron ore swaps, options and futures cleared in March smashed their previous monthly
record, as sharp swings in physical spot prices for the steelmaking raw material drove market
participants to the paper market to offset risk.
In total, over 53 million tonnes of iron ore futures and derivatives were cleared basis The Steel Index
(TSI), up by more than 70% on February and smashing the previous all-time high of 33.7 million
tonnes reached in January by almost 60%. Year-on-year, March volumes grew by nearly 170%. As
usual, Singapore Exchange (SGX) handled the bulk of liquidity, clearing just shy of 50 million tonnes.
The CME Group accounted for nearly 3.5 million tonnes.
Within the total, March also set a new record for the monthly volume of options cleared, exceeding
6.3 million tonnes, more than 18% higher than the previous monthly record in January this year. SGX
accounted for 77% of this and CME Group 23%.
60
50
40
Iron Ore Futures and OTC Derivatives Contracts - Volume Cleared and
Open Interest* (million tonnes)
Futures
35
Options
30
Swaps
SGX Daily Open Interest (RHS)**
25
20
30
15
20
10
10
5
0
0
* Total volume cleared by SGX, CME Group, LCH.Clearnet, NOS Clearing and ICE; Open interest for SGX only
** End of month
The culmination of weak demand and undisrupted supply led iron ore prices to plunge to depths not
seen in more than a year, catching many who had banked on the usual seasonal price support
unawares. The price of 62% Fe iron ore fines fell below US$105/dry metric tonne on 10 March, in a
daily price drop of almost $10/dry metric tonne that took iron ore to its lowest level since October
2012. All in all, the March monthly average was around 8% lower than February.
Weak economic data coming out of China, coupled with an ongoing credit squeeze and clampdown
on polluting industries, has limited Chinese mills’ demand for spot iron ore at a time of strong iron
ore imports. The usual seasonal supply disruptions from rains in Brazil and cyclones off the coast of
Western Australia were relatively mild this year, as was the winter in northern China, where many
domestic mining operations are based. These mines contribute around 300 million tonnes/year of
62% Fe equivalent ore to the country’s steelmakers.
© Copyright The Steel Index 2014
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TSI 62% Fe Fines Benchmark Price (CFR Tianjin Port)
200
US$/
dry
metric
tonne
175
150
125
100
75
50
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Open interest for iron ore swaps, options and futures on Singapore Exchange (a measure of
outstanding open contracts, seen as the best measure of market liquidity) stood at 35.5 million
tonnes at the end of March, its highest-ever level at month close.
For further information
Please contact: Oscar Tarneberg (Singapore) +65 6530 6412 o.tarneberg@thesteelindex.com
The Steel Index (TSI) is a leading specialist source of impartial steel, scrap, iron ore and coking coal price information
based on spot market transactions.
Iron ore price indices are published daily at 19:00 Singapore/Shanghai time (11:00 GMT) and coking coal price indices
daily at 18:30 Singapore/Shanghai time (10:30 GMT). Steel prices for Northern Europe, Southern Europe and US HRC
are published daily at 14:00 UK time and for ASEAN HRC imports daily at 18:30 Singapore time. Scrap prices for
Turkish imports are published daily at 13:30 UK time. Weekly steel and scrap price indices are published every Monday
and Friday respectively, with each price representing the average transaction price for the previous calendar week.
Transaction price data is submitted confidentially to TSI on-line by companies buying and selling a range of relevant
steel, iron ore, scrap, coking coal products. TSI’s index reference prices are then calculated using transparent and
verifiable procedures.
TSI’s indices are widely used by steel mills, miners, traders, distributors and manufacturing companies worldwide as the
basis for their physical pricing arrangements. TSI’s indices are also used as the industry standard in the settlement of
ferrous financial contracts.
Singapore Exchange (SGX), LCH.Clearnet (London), CME Group (Chicago), NOS Clearing (Oslo), Intercontinental
Exchange (ICE) and Indian Commodity Exchange (ICEX) all use TSI’s iron ore index for settling their monthly cleared
iron ore financial contracts. SGX also uses TSI’s hot rolled coil index for ASEAN imports to settle its Asian HRC futures
and swap contracts. In addition, TSI’s prices are used for the settlement of European hot rolled coil steel contracts and
Turkish scrap imports contracts on LCH.Clearnet and CME Clearing Europe. In all cases, settlement prices are the
average of TSI’s reference prices published in the expiring month.
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available at http://www.thesteelindex.com.
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