|The Singapore Exchange (SGX) has seen a "tremendous uptick" in iron ore futures trading activity due to supply concerns following the deadly breach at one of Vale's tailings dams earlier this year.
"There is suddenly a big squeeze on high-quality iron ore," the exchange's head of derivatives, Michael Syn, said in response to a question from Fastmarkets at an SGX press briefing at the 44th Annual International Futures Industry Conference in Boca Raton, in the US state of Florida on Tuesday March 12.
"The only way you could have addressed this if you're a steel mill is through hedging."
Market participants are worried about dwindling iron ore supply following the rupture of a tailings dam at Vale's Feijão mine in Brazil on January 25. The accident has led the miner to issue a warning of a potential iron ore output loss of around 70 million tonnes per year, disrupted its exports of the steelmaking raw material and led major steelmakers such as ArcelorMittal to consider ending the use of dams for mining units in Brazil.
"They've had their licenses taken away from them; they've had their mines shut," Syn said regarding the world's largest iron ore producer. "With the reduced supply of very high-grade iron ore that comes out of Vale in Brazil. we've seen a tremendous uptick in the usage of differentiated grades of iron ore derivatives."
By mid-February, the SGX's new high-grade iron ore futures, which are settled against the Fastmarkets MB 65% Fe Iron Ore Index, had posted more than 3 million tonnes worth of transactions involving 30 market participants since its December 3 launch. The futures contract allows industry participants to manage exposure to future fluctuations in the prices for high-grade products.
The Fastmarkets MB 65% Fe Iron Ore Index was at $96.80 per tonne cfr China on Tuesday, up 8.6% from $89.10 per tonne cfr China on January 25 when Vale's tailings dam experienced the breach.