SGX launches high-grade iron ore derivatives

Its swaps and futures will reference the 65% Fe Brazilian fines index, CFR Qingdao.

The Singapore Exchange (SGX) unveiled high-grade iron ore derivatives, considered the world’s first, as a response to the demand for new risk-management tools amidst a structural shift in China's environmental policy.

According to an announcement, the SGX MB Iron Ore CFR China swaps and futures reference the 65% Fe Brazilian fines index, CFR Qingdao, provided by Fastmarkets MB.

“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.

The new contracts will complement SGX’s bellwether 62% Fe derivatives. “As the physical market evolves along different specifications, today’s launch offers participants the opportunity to trade grade differentials and manage widening basis risks,” SGX added.

SGX head of derivatives Michael Syn commented, “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.”

The exchange, which launched iron ore swaps in 2009, has close to 100% market share in international cleared iron ore and coking coal derivatives. It is driving the completion of a “virtual steel mill” value chain.