The volume of iron ore swaps cleared using The Steel Index (TSI)’s 62 per cent Fe iron ore reference price reached a new high in January.

Over 2.62 million tonnes with a value of more than $470 million were cleared on the Singapore Exchange (SGX) and LCH Clearnet (London) during the month.

"This exceeds the previous record month in April 2010 by 34,500 tonnes. January has set the tone for 2011,” remarked Steven Randall, managing director of TSI.

"2010 saw the momentous move by the iron ore industry away from annual fixed price contracts to index-based pricing. The trend in the market is now towards the use of monthly and shorter pricing periods for iron ore contracts, hedged with iron ore swaps."

"This, together with the recent launch of new steel and scrap forward contracts, means participants throughout the steel supply chain increasingly have the tools needed to manage effectively the challenging market price uncertainty they face," he noted.

John Banaszkiewicz, chairman of the Iron Ore & Steel Derivatives Association (IOSDA), said, “We have seen this business grow from an initial trading market into a serious hedging tool, with bigger players actively adding depth to the swaps volume."

"New players are coming and the concept is becoming much more attractive to players with physical exposure as well as the banks that helped kick-start it," Banaszkiewicz observed.

"Another important factor that we see is growth in confidence that the indices accurately reflect the underlying market. This means that contract buyers can move towards more spot and period purchases with the knowledge that the indices they are settling against are reliable for physical deals and hedging," he added.

The volume of "open interest" on the SGX iron ore contract also reached a record high of 2,867 lots (1,433,500 tonnes) in January.-TradeArabia News Service