It was the first to launch an iron ore option contract, and already has a larger offering in the iron ore space, with two swaps and two option contracts. If liquidity does expand over the long term, the Chicago-based exchange’s first-mover advantage may mean it benefits more from any migration, traders said. IO62-CNI=SI saw about 3.5 million tonnes traded in 2012, against 109 million on SGX.Īlthough growing quickly, the global iron ore swaps market represents only about a tenth of the 1.1 billion tonnes of physical seaborne iron ore traded each year. Domestic rival CME Group CME.O has similar contracts, which have struggled against SGX's dominance.ĬME's more liquid swap contract settled against The Steel Index (TSI). ICE may find stiff competition in the fledgling market closer to home too, traders said. The OTC iron ore derivatives market started in 2008 and has grown significantly in the last few years as the global steel industry moved away from a decades-old system of negotiated annual contracts to mechanisms based on daily spot market assessments. Such instruments provide price certainty for the buyer and seller by setting a fixed price for a set time.
Iron ore swaps are used by some miners, steelmakers and traders to hedge their physical positions or by speculative investors who bet on prices for the key steel ingredient.Īn iron ore player can use swaps to offset physical price exposure by taking an equal and opposite position in the paper market. The move is seen aimed at retaining its U.S. It has said it will introduce on February 25 an iron ore futures contract, which unlike swap contracts should not be affected by U.S.
ICEFACES MEANS REGISTRATION
SGX is still awaiting CFTC registration as a designated clearing organization. If they already have an ICE account, iron ore is just an extension,” said a London-based trader, who uses SGX and CME to clear iron ore swaps and options respectively, and is not considering switching to ICE. “The only people who will look at ICE might be those who already do gas or other products with them. firms, though, are estimated to account for less than 10 percent of global iron ore swaps. “The expansion of ICE’s iron ore offering could provide additional market access for some participants,” said Mike McGovern, vice president for commodities at Citi. With new rules forcing banks to use cleared markets rather than over-the-counter (OTC) derivatives, Wall Street banks may prefer to use a domestic exchange registered with the Commodity Futures Trading Commission (CFTC) as designated clearing organization, a requirement under Washington’s Dodd-Frank Act. For one, it may have a home advantage, although the relatively small size of the U.S. However, there are factors in ICE’s favor.
Its proximity to China, the world’s top iron ore importer, also represents a clear advantage for the Asian exchange. SGX, which was the first to launch a cleared iron ore contract in 2009, has more than 90 percent of global volume, according to SGX and trader estimates. Although there is growing liquidity, volumes are still not high enough to be split (between exchanges),” said Lee Taylor, an iron ore broker at London Commodity Brokers. “The general impression seems to be that the new ICE contracts will not make much of an impact. 1 consumer of the key ingredient in steelmaking.īut some traders say it will be a challenge to lure money away from an entrenched benchmark that has the support of the market’s biggest traders. investors in using iron ore derivatives as a play on China, the world’s No. The Atlanta-based exchange aims to capitalize on growing interest among U.S.
exchange expanded its offering with Monday’s launch of two iron ore swap futures contracts. More than three years after the launch of its first iron ore derivative, the U.S. NEW YORK/SINGAPORE (Reuters) - IntercontinentalExchange Inc ICE.N may struggle to wrest much business from Asian rival Singapore Exchange SGXL.SI as U.S.-based ICE embarks on its latest push into the lucrative, 115-million-tonne market for iron ore swaps.
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