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SGX Iron Ore Futures
Asia's benchmark iron ore derivatives marketplace — Trade Futures, Swaps and Options across Multiple Iron Ore Varieties.
Iron ore is the primary raw material used in the production of steel. Steel products can be in various forms including steel rebar, steel plates and hot rolled coils and is the key material used in construction, ship building and other manufacturing activities. China is the main importing nation for global seaborne iron ore and major iron ore producing countries include Australia and Brazil.
SGX, home of the international iron ore derivatives, offers Iron Ore (IODEX) Swap, Futures and Options. As there is frequent divergence in pricing of iron ore varieties, the launch of SGX Iron Ore CFR China (58% Fe and 65% Fe Fines) Swap and Futures and SGX Iron Ore CFR China (Lump Premium) Swap and Futures will provide participants with an effective hedging instrument and more trading opportunities.
Swap and Futures
Fungibility of Swap and Futures Positions
Each SGX Iron Ore Futures Contract is fully fungible with its corresponding OTC commodity swap. The contract specifications of a futures contract and its corresponding swap contract are similar in most aspects; both contracts share the same daily and final settlement prices and expiry dates.
Once such contracts are cleared, the risk management treatment and pay-off for the two contracts are identical. A customer with equal and opposite positions in a futures contract and its corresponding swap contract will enjoy close to 100% margin offset. SGX Iron Ore Futures will be available for trading through the same avenues as SGX’s current futures contracts.
Options
SGX Iron Ore Option contracts offer participants with an additional effective hedging instrument to manage price risk. They allow participants to customise their economic protection and exposure according to their risk profile by selecting the appropriate strike prices and options strategies.
- Price Protection — Buyers have limited downside potential and unlimited upside potential.
- Increased Profits through Speculation — Profit from a movement in the relevant underlying swap or futures for a fraction of the cost of purchasing the relevant underlying swap and futures contracts.
- Earn Income — By writing options against the relevant underlying swap and futures contracts.
Margin Savings for Inter-Commodity Spreads
SGX provides significant margin credits across the suite of SGX Iron Ore derivatives contracts. In addition, margin offset between SGX Iron Ore derivatives and a number of SGX’s complementary bulk commodity products such as coking coal, steel, and freight derivatives is also available, resulting in greater capital efficiencies.
Key Features
- Effective Hedging
- Effective hedging instrument to manage physical iron ore price risk.
- Effective hedging instrument to manage physical iron ore price risk.
- Ease of Trading
- Ease of taking and liquidating positions with no risk of physical delivery.
- Ease of taking and liquidating positions with no risk of physical delivery.
- Daily Mark-to-Market
- Better risk management through daily mark-to-market of positions.
- Better risk management through daily mark-to-market of positions.
- Single Clearing Agreement
- Trade with a growing pool of counterparties under a single clearing agreement.
- Trade with a growing pool of counterparties under a single clearing agreement.
- Reduced Counterparty Credit Risk
- Straight-through and real-time clearing with instant confirmation.
- Straight-through and real-time clearing with instant confirmation.
- Flexible Strategies
- Enables customers to combine swaps, futures and options strategies to achieve specific hedging objectives and risk profiles.
The SGX MB Iron Ore CFR China (65% Fe Fines) contract is available as both an Index Futures and a Swap, offering participants flexible instruments to hedge against price movements in high-grade iron ore benchmarked to the Fastmarkets MB MBIOI 65% Fe Brazilian Fines, CFR Qingdao Index. The Index Futures contract (M65F) covers 100 metric tonnes per lot, while the Swap contract (M65) covers 500 metric tonnes per lot. Both contracts are cash-settled and are available for up to 3 calendar years of contract months.
Source: SGX
This advertisement has not been reviewed by the Monetary Authority of Singapore.
The SGX Option on MB Iron Ore CFR China (65% Fe Fines) is available on both the Index Futures and the Swap, giving participants targeted optionality on high-grade iron ore prices. Index Futures options (Calls: CM65F; Puts: PM65F) cover 100 metric tonnes per lot, while Swap options (Calls: CM65; Puts: PM65) cover 500 metric tonnes per lot. Both are European-style options — exercised automatically at expiry if in-the-money — and are available for up to 2 calendar years of contract months.
Source: SGX
This advertisement has not been reviewed by the Monetary Authority of Singapore.
The SGX MB Iron Ore CFR China (58% Fe Fines) contract is available as both an Index Futures and a Swap, providing an effective hedging instrument for lower-grade iron ore benchmarked to the Fastmarkets Metal Bulletin MBIOI-58% Fe Fines, CFR Qingdao Index. The Index Futures contract (M58F) covers 100 metric tonnes per lot, while the Swap contract (M58) covers 500 metric tonnes per lot. Both contracts are cash-settled and are available for up to 4 calendar years of contract months.
Source: SGX
This advertisement has not been reviewed by the Monetary Authority of Singapore.
