SMX launches world's 1st dollar-based iron ore derivative contract: Maya Iron Ores

The iron ore market was quite steady in the 1st half of the week and picked up slightly towards Friday. The tightening of credit in china, to keep the inflation under control, has affected the purchase power of the mills considerably. The fresh orders have been quite soft from the mills in the month of August, even though the inventories are relatively low. Despite the low volume of purchases, the iron ore prices remained firm and are bound to gain in the coming weeks. The approach of busy season in China will keep the steel demand pretty busy, with crude steel output expected to be on the highs in the month of August. Fresh orders for iron ore from china will be more intense for the latter part of August.

The Chinese imports of Australian and Brazilian ores improved marginally for current week with Indian ore imports falling below 1 million MT mark, posting a decline of more than half a million MT from the previous week.

The Indian ore supply will be in troubled waters for the near future as mining operations are greatly affected due to multiple reasons. The Indian domestic steel plants are facing acute shortage of raw material supply owing to the ban from Karnataka region and scarce mining from Orissa sector. Many sponge iron plants are at the verge of closures due to non availability of raw material.

Even if the Karnataka ban is lifted and Orissa supply is back on track, it will take quite some time to suffice the need of the domestic industry itself. Hence the high grade ore availability for exports will be of great scarcity in the near future.

Resumption of Goa operations in September can ease some pressure on low grade exports, but not to a great extend. The transporters in Orissa had gone on an indefinite strike demanding a hike in transport rates, which has halted the movement of ore from Orissa adding further pressure on the ore supplies. Taking advantage of the situation, Indian miners have increased the ex-mines prices by Rs 300 per metric ton for high grade ores.

Singapore Mercantile Exchange (SMX) launched iron ore derivative contract which will act as a major risk management tool for the iron traders globally. Indian Commodity exchange (ICEX) and Multi commodity Exchange (MCX) has launched iron ore derivatives for India trading community in January this year. The price fluctuations will be quite severe and the iron ore derivative contracts will act as a perfect hedge solution for traders, miners and mills to reduce the profit volatility.

The CFR price for 63% grade Indian iron ore to China will range from $187 to $190 per metric ton for the coming week.

(Complied by Praveen Kumar, Chairman, Maya Iron Ores)