Iron ore trade growth fuels demand for derivatives and competition between Asian bourses

Ahead of the S&P Global Platts Global Metals Awards in London, on May 16, The Barrel presents a special series of articles looking at the global metals trade. Here, Joseph Tong and Petter Kolderup investigate the growth of iron ore derivatives trading, and rising competition between two leading bourses, Singapore’s SGX and Dalian’s DCE. In order to become the second-largest economy in the world, China has built up its infrastructure in a systemic, large-scale fashion since opening up in the 1970s. This process has also seen China increase steel output to become the world leader, accounting for half of global production. Consequently, China is also the largest importer of iron ore – the key feedstock in steelmaking, importing 1.064 billion metric tons in 2018. This is not a small number, and iron ore, now the second-biggest commodity market in the world after oil, deserves substantial attention. The fast growth in iron ore imports, along with increased steel production, led to the breakdown of the traditional annual benchmark supply contracts between miners and steel producers. As China moved rapidly towards a more spot-based market, a need emerged for derivatives to manage price risk. As exchanges play an important role in price… continue reading

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Source: CTRM Center

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