First iron ore swap to clear on CME’s Clearport

Stemcor Risk Management AG, the derivative trading arm of the world’s largest independent steel trader, and Citigroup Global Markets transacted on Thursday 10 October 2010 the first iron ore swap cleared on the CME Group Clearport platform. The transaction was brokered by London Dry Bulk (LDB).

The contracts are monthly cash-settled swaps out to 24 months forward. The settlement price is The Steel Index (TSI) China Import Iron Ore Spot Reference Price - CFR Tianjin Port for 62% Fe fines.

Jean-Luc Fiorenzoni, Director of Stemcor Risk Management AG, said: ”We trade iron ore swaps on a regular basis and they are an integral part of the tools we are using to manage our exposure to iron ore as well as steel price changes. There is no question that price volatility is increasing. At the same time participants in the steel industry, wherever they might sit in the value chain, need more visibility over their future returns. Cleared financial swaps offer us all an additional level of price risk mitigation as well as improved transparency.”

Boudewijn van Vliet, responsible for iron ore, coal & freight trading at Citigroup Global Markets added: “This trade demonstrates the commitment of Citi to develop this market. A deep and liquid swaps market for iron ore will be instrumental for our customers’ ability to manage their exposure to this volatile market.”

 “We are pleased to facilitate yet another pioneering trade on a new entrant exchange. London Dry Bulk now offer its customers the ability to clear through all available exchanges with Iron Ore Contracts",  said Gareth Hudson, Head of Iron Ore Desk.

Joe Raia, MD, Energy and Metals Products, CME Group, said, “As global demand for ferrous products increases, the need for transparent, reliable clearing services has grown.  CME Group’s cleared OTC iron ore swaps offer market participants the benefits of clearing through a central counterparty – including counterparty risk mitigation and both balance-sheet and operational efficiencies – while retaining their preferred methods of pricing and execution.”