Thursday, October 07,
Demand for Iron-ore swaps has dropped following this year’s shift from a four-decade old pricing system towards a shorter-term contracts and a lack of interest from steelmaking consumers of the ore.
“The system has changed, there is no going back and I think the bottleneck is: the steel mills don’t really understand or want to use swaps at the moment,” said Jim Lennon, Executive Director of commodities and mining research at Macquarie Group Ltd. in London. Uptake of swaps will “take time,” he said.
Trade in the derivative contracts was 40% lower in September than in April, according to data from SGX AsiaClear, the securities and derivatives exchange of Singapore Exchange Ltd.
“What’s missing at the moment on the derivatives market right now is liquidity,” said, Michael Widmer, head of metal markets research at Bank of America Merrill Lynch in London.
Swaps peaked in April with 4,436 lots traded for a volume of 2.2 million tons, according to data from SGX AsiaClear. The volume for September was 2,682 lots, or 1.3 million tons, the data shows.
Source: Bloomberg
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