“We are encouraged to see strengthening market adoption in the SGX MB 65% Iron Ore futures as a precise hedging tool for the high-grade market, underpinned by the green transition. The recent volume growth in the contract also demonstrates higher trading interest in the 65-62 Fe grade differentials,” Tan Tee Yong, Head of Commodity Derivatives, SGX said.
65% Fe derivatives as a hedging mechanism for high-grade iron ore trades
One of the distinctive functions of the 65% Fe derivatives that separates it from other ferrous-related derivatives is to allow market participants to gain exposure into the high-grade iron ore market.
The 65% Fe derivatives not only capture the liquidity of mainstream high-grade sinter fines from Brazil, it is also the main tool for traders to hedge physical positions on high-grade pellet feed cargoes, according to a trader in Hong Kong.
The trader added that the expansion of pelletizing capacity in emerging direct-reduced iron (DRI) hubs such as the Middle East and Europe is expected to increase the utility and reliance of the 65% Fe derivative contract.
“While it may seem that decarbonization and green steel efforts have been taking a backseat between 2022-2024 due to poor steelmaking profits, the movement towards metallics and DRI in steelmaking will only continue to place greater emphasis on higher-grade iron ore over its direct-shipping ore counterparts,” a trader source in Europe said.
Expanded utility of high-grade pellet feed indices
“Mid-grade iron ore futures volumes have grown rapidly in the past years and the SGX Fastmarkets Iron Ore 65% futures, a high grade, are well positioned to grow in the coming years giving traders a vehicle to express their views on the high-grade market as the transition to a green economy continues. We are excited to see that the volumes on SGX noted a record day and expect higher volumes to continue in the near and medium term,” Fastmarkets global head of market development Przemek Koralewski said.
Market participants also attributed the increase in utility of the 65% Fe derivatives to an uptick in usage of high-grade pellet feed indices in the seaborne market.
A trader in Shanghai told Fastmarkets that a high-grade pellet feed producer is exploring the use of Fastmarkets’ 67.5% Fe pellet feed premium CFR Qingdao and 67.5% pellet feed index CFR Qingdao for their cargoes in their off-take agreements.
The trader added that this move follows the use of the 67.5% pellet feed index to settle contracts for a widely used Brazil-origin pellet feed in the previous year.
Iron ore indices August 8 vs August 7
Iron ore 65% Fe Brazil-origin fines, cfr Qingdao: $113.98 per tonne, down $1.75 per tonne from $115.73 per tonne
Iron ore 62% Fe fines, cfr Qingdao: $99.28 per tonne, down $1.58 per tonne from $100.86 per tonne
Iron ore 58% Fe fines, cfr Qingdao: $79.51 per tonne, down $1.58 per tonne $81.09 per tonne
The 1.22 million tonnes of 65% Fe contracts were traded on August 7. Here’s the breakdown of each contract, its respective average price, and its total traded quantity:
August 2024 contract: $116.39; 192,000 tonnes traded
September 2024 contract: $115.60; 207,000 tonnes traded
October 2024 contract: $115.36; 160,000 tonnes traded
November 2024 contract: $115.38; 150,000 tonnes traded
December 2024 contract: $115.38; 150,000 tonnes traded
January 2025 contract: $114.19; 120,000 tonnes traded
February 2025 contract: $114.19; 120,000 tonnes traded
March 2025 contract: $114.19; 120,000 tonnes traded
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