Iron-Ore Swaps Trading Rises to Record in 2012 as Price Rebounds

Trading in iron-ore swaps, used to bet or hedge on the future cost of the steelmaking commodity, rose almost threefold to a record this year as prices slumped to the lowest in nearly three years before rebounding.

Buying and selling of the contracts rose to 111 million dry metric tons in the year to Dec. 28, from 43.4 million tons in 2011, according to data published on the website of SGX AsiaClear, the Singapore-based clearing house. About 1.1 billion metric tons of the raw material were shipped by sea in 2012, according to Clarkson Plc, the world’s largest shipbroker.

Trading in the contracts surged in August and September as the physical price of ore delivered to the Chinese port of Tianjin slid to $86.70 a dry ton, the lowest since October 2009, amid stalling steel demand in the country, the biggest producer. The cost then rebounded, rallying to $139.40 by Dec. 28, according to data from The Steel Index Ltd. It averaged $128.26 in 2012, 23 percent less than the prior year,

SGX cleared 17.6 million tons of over-the-counter traded iron-ore swaps in 2010, its data show.

Vale SA (VALE5), the world’s largest iron ore producer, said this month that it sold 52 percent of the commodity based on the spot price or the monthly average of the spot price and 32 percent on a quarterly average price. The industry shifted toward spot- cargo sales in 2009 after more than 40 years of setting annual prices, according to the Rio de Janeiro-based company.

To contact the reporter on this story: Michelle Wiese Bockmann in London at mwiesebockma@bloomberg.net

To contact the editor responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net

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