FIS Iron Ore Swap Contract

The majority of traded iron ore — up to 80% — has traditionally been sold using an annual benchmark price negotiation. Spot trading so far has been predominantly in iron ore fines driven by producers dealing with trading houses and mills.

But huge swings in the delivered price and the emergence of a larger spot market for iron ore have underlined the need for a dedicated, cleared contract to manage price risk. Going forward , traders will increasingly embrace new derivative tools, new pricing methods and the greater use of hedging.

To answer this demand, FIS has teamed up with the London Clearing House to offer the FIS Iron Ore Swap. The cleared CIF China contract is designed to enable better price risk management for users and traders and eliminate counterparty risk, thus managing financial exposure.

Already the leading freight derivatives and fertilizer swap broker, FIS is the only independent brokerage for iron ore swaps, producing the only independent forward curve as well as daily market information, comment and price history. FIS is relied upon to supply its daily mark-to-market assessment to clearing houses LCH.Clearnet and SGX Singapore.

The cleared iron ore derivative contract operates as an over-the-counter, cash-settled agreement, with settlement against The Steel Index TSI. Trades can also be settled bilaterally against the Metal Bulletin MBIO or Platts Iron Ore Index and these trades will generally operate under an international swaps and derivatives association agreement. Trades can be made on a per month, per quarter or per calendar year basis and prices quoted up to 24 months forward.

The direct link to LCH.Clearnet ensures the product is designed to meet the needs of the market, through elimination of counterparty risk and better cash management. Banks and funds as well as producers, shippers and end-users of iron ore can each use the contract to benefit their business.

The contract can be traded stand-alone or combined with a freight derivative contract to provide strong risk management.

For more information about the FIS iron ore swap or to discuss trading opportunities, please contact research@freightinvestor.com.

View sample Iron Ore Market Report