SGX to launch more ESG products to help steel industry's decarbonisation efforts

Upon its launch in May 2021, SGX became the first international exchange to offer a steel derivatives contract based on domestic China prices.
Upon its launch in May 2021, SGX became the first international exchange to offer a steel derivatives contract based on domestic China prices.PHOTO: REUTERS

SINGAPORE - The Singapore Exchange (SGX) said it will continue to launch trading products to help the global steel industry achieve its decarbonisation goals.

SGX chairman Kwa Chong Seng said the industry's need to tackle climate change has never been greater, given that it accounts for almost a tenth of global greenhouse gas emissions. He was speaking on Tuesday (July 13) at the virtual opening ceremony of this year's Singapore International Ferrous Week.

"Stakeholder expectations are shifting, and it is becoming ever more critical for businesses to balance growth with environmental, social and governance (ESG) considerations," said Mr Kwa.

He said some progress towards that goal has already been made, with most industry players increasingly exploring new steel-making processes.

However, full decarbonisation of steel making "will be an ongoing journey", he noted.

He said that in shipping, which is part of the steel value chain, a gradual shift towards the use of cleaner fuels as an alternative option to conventional fossil fuels is already happening.

Mr Kwa referred to the ESG-related commodity derivative, 65 per cent Fe Iron Ore futures, and the International Maritime organisation (IMO) 2020 compliant Low Sulphur Fuel Oil and Methanol contracts, as SGX's contribution to support of the industry's switch to greener raw materials and inputs into the production process.

The 65 per cent Fe Fines iron ore is considered a greener grade, as it produces more steel with less energy consumption and coke usage as a reducing agent.

SGX Low Sulphur Fuel Oil derivative contracts facilitate the transition towards a greener economy, in line with the IMO 2020 ruling which came into effect in January 2020.

Mr Kwa also said that SGX was the first Asian exchange to develop a global carbon exchange - Climate Impact X (CIX).

CIX will feature carbon credits from various quality nature-based projects globally on its platforms, which corporates can use in their journey to achieve credible decarbonisation and transition.

"As an exchange and neutral price discovery hub, SGX will continue providing sustainable solutions, and to engage closely with the market on the evolving demand for risk instruments," Mr Kwa said.

Dr Tan See Leng, Singapore's Minister for Manpower and Second Minister for Trade and Industry, said the Maritime and Port Authority of Singapore recently signed a memorandum of cooperation with six global companies, including BHP, to establish a maritime decarbonisation centre here.

The centre will collaborate with Singapore's research centres and institutes of higher learning to fund research and development projects to advance maritime decarbonisation efforts.

Beyond supporting the decarbonisation effort, Dr Tan said that Singapore in general, and SGX in particular, helps the industry manage its price and supply chain risks.

"The wide swings in commodity prices in the last year have highlighted the need for more attention and tools to manage this risk," he said.

SGX offers a comprehensive suite of price risk management tools across the steel value chain, from iron ore to coking coal, freight and steel rebar, he noted.

Dr Tan said SGX's latest China rebar derivatives contract will allow domestic and international participants to access China's domestic steel market.

Upon its launch in May 2021, SGX became the first international exchange to offer a steel derivatives contract based on domestic China prices.

Dr Tan said the disruption caused by the Covid-19 pandemic has also shown the importance of strengthening the resilience of supply chains.

However, despite global supply chain shocks triggered by the pandemic, Singapore's commodities trading sector remained relatively resilient, with offshore trade of iron and steel products growing by 9 per cent from one billion tonnes in 2019 to 1.1 billion tonnes in 2020, he noted.

Singapore is also helping the industry ride the wave of digital revolution to maintain its competitive edge.

He gave the example of a WeChat mobile app launched last year in Singapore by the commercial services and digital team of Rio Tinto, the world's second-largest metals and mining corporation after BHP.

He said that as a testament to Singapore's strong rule of law, favourable business environment, liquid financial sector and highly skilled workforce, the Republic last year was ranked fifth on the Commodity Trade Index - an industry benchmark which assesses the role of 10 key commodity trading hubs.