Tradable futures contract envisioned for iron ore...
Raw Materials Group sees LME iron ore contract
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Reuters - Saturday, February 20
* Sees LME iron ore contract within a couple of years
* Sees big supplier spot price to act as LME reference price
* LME may look at contract, but anything is some way off
By Julie Crust
STOCKHOLM, Feb 19 - Swedish-based consultancy Raw Materials Group said it expected the London Metal Exchange to introduce an iron ore contract within a couple of years.
"It has been in discussion for quite a long time," Per Storm, managing director of Raw Materials Group, told Reuters. "It will take a year or so at least."
He expected to see a move from annual contracts negotiated by the big three iron ore producers -- BHP Billiton <BHP.AX><BLT.L>, Rio Tinto <RIO.AX><RIO.L> and Vale <VALE5.SA><VALE.N> -- with steel mills towards more spot trading.
"There will probably not be a 100 percent spot market as each mine is different from another," he said. "There will probably be a spot price for one of the bigger suppliers such as BHP Billiton" that would act as reference price.
BHP earlier this month predicted growing liquidity in international iron ore markets will force its customers to dump annual contract pricing and accept spot-based trading.
The LME plans to set up an Asian operation, its first overseas move, with the opening of an office in Singapore in April and there is market speculation that LME Asia will work on setting up a traded iron ore contract.
It does not have a traded contract, but it will have a facility that allows members to send iron ore through the clearing house.
"With our presence in the steel market through our billet contract and also molybdenum, nickel and zinc, it makes sense to see what other steel industry specific products we can add," said Chris Evans, head of business development at the LME.
"We could look at a traded contract, but I think that point is some way off, he said.
The increase in the number of iron ore producers in the market, in particular smaller producers, means that it makes sense to have an LME contract rather than lots of individual talks," said Anton Lof, a research analyst at Raw Materials and a specialist in the global iron ore trade.
"An iron ore contract would enable smaller iron ore companies to hedge output," he added.
Iron ore benchmark prices are likely to go up by 10-15 percent this year, while demand will rise by around 10 percent compared with last year, the Raw Materials Group said on Feb 1. [ID:nLDE6101ND]
MINOR METALS
The LME took around two years to set up its cobalt and molybdenum futures trading contracts that are set to start on Feb. 22.
Storm said it is too early to say what impact the contracts will have on the two minor metals.
"It remains to be seen what will happen, they are fairly small markets," said Storm.
The LME's plastics contracts, introduced in May 2007, have yet to take off.
"You have to put things in perspective, I think the aluminium <MAL3> contract took five to 10 years to establish itself and now it is the most traded metal on the LME. These things take time," Storm said.
The aluminium contract traded 49.7 million lots in 2009 and together with copper and zinc accounted for more than 80 percent of the trading volume on the LME. |
