Japan's Mills, Steel Buyers Study Ore Swaps, Credit Suisse Says

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30 Jun 2010

Japanese steelmakers, the world’s second-biggest producers of the alloy, and consumers such as automakers may follow Mitsui & Co. in entering the growing iron ore swaps market, according to Credit Suisse Group AG “We’ve been actively engaged with more than a dozen clients in Japan who are at various stages of assessing the opportunity and Mitsui was the first one to trade,” Alex Toone, head of commodities for Asia Pacific at Credit Suisse, said today by telephone from Singapore. Credit Suisse was a party in Japan’s first iron ore swap trade, completed by Mitsui on June 25, he said, declining to give more details.
Deutsche Bank AG started offering iron ore swaps with Credit Suisse in 2008 at the instigation of BHP Billiton Ltd., the world’s biggest mining company, which was dissatisfied with the way ore in the estimated $200 billion-a-year market was priced. Vale SA, Rio Tinto Group and BHP, the three biggest suppliers, this year scrapped a 40-year tradition of setting prices annually in favor of quarterly contracts.
“Things have moved amazingly quickly this year, much faster than perhaps even we would have expected,” Toone said. “There are people who are proactively looking at it in China, people in Korea, people in Japan. There are more participants in this market every single day.”
Trading in the swaps allows users to fix prices in advance for single cargoes. The market may grow 10-fold to 360 million metric tons annually over the next two years, Credit Suisse estimated in February. Interest in the swaps has increased following the shift to quarterly prices, Toone said.
Thyssen, Rio
ThyssenKrupp AG, Germany’s largest steelmaker, said in April it’s considering whether to use the derivatives after annual pricing was dismantled by iron ore producers.
“What we’ve seen over the past several years is that the iron ore markets are naturally evolving to shorter periods of pricing,” Tom Albanese, Rio’s chief executive officer, said in an interview at the Fortune Global Forum in Cape Town June 27. “We are going to continue to see an evolution of that market as we move forward.”

Source: Bloomberg