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Iron ore derivatives cleared volumes to exceed 100 mmt in 2012: TSI

Thursday, 23 February 2012 | 00:00
The derivatives market in iron ore was robust in 2011 with cleared volumes rising to 58 million tonnes (mmt)l, according to The Steel Index (TSI). Of the 58 mmt cleared, 54 mmt was cleared against TSI’s iron ore index.
In 2012, the annualized growth would exceed 40% with cleared volume of iron ore derivatives to exceed 100 mmt, according to Tim Hard, Director of Steel and Scrap at TSI.
In January 2012, 7 mmt of iron ore derivatives were cleared. Iron ore options trading which was launced in the second half of 2011 has seen a robust growth with in a few months compared to the response received for iron ore swaps in the early months after its launch in early 2009, TSI report said.
In parallel with the iron ore swaps markeet, NOS clearing, the CME Group and most recently, LCH.Clearnet all offering clearing for iron ore options. To date over 6.5 mn tonnes of iron ore options hav ebeen cleared of which over 99% has been based on TSI index.
Iron ore options offer a flexible way for companies to have the opportunity to secure a forward price, at known capital requirement. Whereas swaps commit the owner tot he strike price (unless they trade out of the that positions) and can require a significant amount of capital to maintain (from margin call payments if the spot market prices moves against the owner of the scrap), iron ore options require a known premium to set up with out the risks of additional outlays, if the option goes out of the money, that initial premium premium is the only money at risk, lowering barriers to entry, TSI report said.
Source: Commodity Online
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