Cleartrade Exchange lists swaps on China’s domestic steel market

Five different swaps contracts launched

Steel Steel

10 July, 2012, London and Singapore: Cleartrade Exchange Pte Ltd (CLTX) has launched five steel swaps contracts, creating the first opportunity to trade Chinese domestic steel products electronically outside of China. The launch also makes electronic trading in steel scrap derivatives possible for the first time.

With Chinese steel production now accounting for almost half of the global total, price movements in the Chinese steel and iron ore markets are attracting increasing attention of steel market players. CLTX provides the easiest way for non-Chinese companies to access China’s domestic market, using its OTC electronic global marketplace for freight and commodity derivatives.

In the past twelve months Chinese rebar prices have moved from a high of $786/tonne to a low of $634/t, while 62% Fe iron ore delivered into China has moved between $116/t and $181/t. With the cost of iron ore accounting for over 40% of finished steel prices there is a clear opportunity for steel market players to arbitrage between the two using cash-settled swaps.

Iron ore volumes have shown huge growth in recent months, with a new record of almost 8m tonnes of cleared swaps trading in May. Global steel production showed growth of almost 6% in 2011 to reach over 1.5bn tonnes, according to World Steel Dynamics, illustrating the so far untapped potential for hedging.

Richard Baker, CEO of CLTX, said: “The launch of this suite of steel products underlines our commitment to helping our clients mitigate their risk using the Virtual Steel Mill. With raw materials such as iron ore and price inputs like freight already trading on our exchange, this latest initiative allows our clients to also hedge their end-product risk.”

Steven Randall, managing director of TSI, commented, “This year has seen a sea change in the market’s appetite for trading steel and scrap swaps. Cleared volumes of scrap swaps settled using TSI have hit new monthly records three times since January and we are delighted to partner with Cleartrade Exchange to enable clients to electronically trade these TSI-based derivatives.”

Isabella Kurek-Smith, director of freight & energy, LCH.Clearnet Ltd., said, “We believe that the efficiencies of clearing, coupled with margin offsets across the ferrous metal and freight complex, will further accelerate the development of liquidity in the global steel market. In 2010 LCH.Clearnet Ltd was the first clearing house to list OTC steel swaps and it continues to be a pioneer in derivative clearing services.”

The contracts, which will be available for clearing at LCH.Clearnet Ltd., are:

  • Northern Europe Hot Rolled Coil, M10, SCN Hot Rolled Coil
  • Southern Europe Hot Rolled Coil, M11, SCS Hot Rolled Coil
  • Turkish scrap contract, M12: SST Turkish Import Scrap

All three with settlement based on The Steel Index (TSI).

  • China Domestic Hot Rolled Ribbed Bar, M13: SBC
  • China Hot Rolled Coil, M14: SCC

Both with settlement based on the CLTX China Steel Index.

Shufang Yang, research center assistant director of Beijing-based Umetal, added, “We are pleased to be the index and methodology provider for the CLTX Steel Index. With over a hundred data providers and prices sourced from over 25 major cities across China, the index is a representative and accurate indicator of the market. It gives traders of steel derivatives the confidence of settling on an index which is a true indicator of price movements in the Chinese steel market.”

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