LCH.Clearnet has confirmed it will launch its cleared OTC iron ore swap contract using exclusively The Steel Index (TSI) iron ore reference price for settlement.
"We are delighted to provide LCH.Clearnet with the index for its settlement of cleared iron ore swaps. Its selection of TSI's iron ore reference price confirms our index as the industry standard." says Steven Randall, Managing Director of TSI. "The growth potential in iron ore swap trading is enormous. In 2008 physical shipments of iron ore exceeded 800 million tonnes, with more than 40% sold into China on a spot price basis."
This move by LCH.Clearnet follows the successful launch of a cleared iron ore swap contract on 27th April 2009 by the Singapore Exchange, which also chose exclusively The Steel Index iron ore reference price for settlement.
TSI's iron ore reference price has won widespread industry support due to its rigorous and verifiable methodology. Index prices are based entirely on actual spot transaction data submitted by industry participants.
Rising iron ore price volatility and uncertainty about future price movements mean miners, traders and steel mills are increasingly looking for tools to manage the price risks involved in selling and buying iron ore. LCH.Clearnet's clearing of OTC iron ore swap contracts based on TSI's prices will enable traders to mitigate bilateral counter-party credit risk.
Isabella Kurek-Smith, Director Energy and Freight at LCH.Clearnet said "As one of the leading providers of price information for key steel products globally, TSI was a natural choice for LCH.Clearnet. With our specialist OTC clearing services and TSI's reliable reference prices, the iron ore swap market now has the opportunity to evolve into a key derivatives market."
The cleared contract uses TSI's 62% Fe iron ore reference price for fines delivered to China for settlement. It is cash-settled on the average of the iron ore reference prices published in the expiring month.