SGX launches 'world's first' high-grade iron ore derivatives; in tie-up to develop Belt and Road-related indices

SGX said the new contracts will "add vibrancy" to the global iron ore market and offer investors the opportunity to trade grade differentials and manage widening basis risks.
SGX said the new contracts will "add vibrancy" to the global iron ore market and offer investors the opportunity to trade grade differentials and manage widening basis risks.PHOTO: ST FILE

SINGAPORE - The Singapore Exchange (SGX) on Monday (Dec 3) launched a set of high-grade iron ore derivatives to meet a demand for new risk-management tools, as China increases its use of premium iron ore for steelmaking in its pursuit of environmentally friendly growth.

The SGX MB Iron Ore CFR China swaps and futures, designed in close consultation with market participants, reference the 65% Fe Brazilian fines index, CFR Qingdao, provided by Fastmarkets MB, the bourse said in a press statement.

Calling the derivatives a "world's first", the SGX said the new contracts will "add vibrancy" to the global iron ore market and offer investors the opportunity to trade grade differentials and manage widening basis risks.

"Iron ore has become Asia's first truly global commodity, increasingly following in the footsteps of the oil complex in terms of size and economic importance," said Michael Syn, head of derivatives at the SGX.

"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 SGX began clearing iron ore derivatives in 2009 and clears nearly 100 per cent of all iron ore and coking coal derivatives globally.

In a separate announcement on Monday, the SGX announced a partnership with Nanhua Futures, a China-headquartered financial derivatives services platform, to develop indices representative of China's Belt and Road Initiative (BRI).

Under the partnership, SGX's index business SGX Index Edge will work with Nanhua Futures' subsidiary Nanhua Fund to identify the types of indices and respective methodologies that would be of interest to Chinese and international investors. They will also jointly conduct and promote equity research on Singapore stocks that would be relevant and of interest to those same investors.

"Utilising SGX Index Edge's index-calculation expertise, coupled with Nanhua's research capabilities in China, we are looking to compile an index for investors to track and capture investment opportunities arising from the BRI," SGX head of market data and connectivity Ng Kin Yee said, noting that many Asean and China plays in a variety of sectors are listed on the SGX and will benefit from the BRI.