Singapore SMX's iron ore futures see small volumes

Fri Aug 19, 2011 |By Reuters

SINGAPORE Aug 19 (Reuters) - Volumes traded on the Singapore Mercantile Exchange's iron ore futures remained thin a week after the bourse launched the contract with market participants opting for widely-traded swaps instead.

SMX, owned by India's Financial Technologies , introduced its cash-settled iron ore futures contract on Aug. 12, hoping to tap into a growing market to hedge prices of the steelmaking raw ingredient.

From two lots traded on the launch date, volume rose as high as 38 lots on Tuesday. Volumes reached 36 lots by 0909 GMT on Friday.

The most-traded August iron ore contract stood at $177.50 a tonne, after closing at $177.80 on Thursday. It began trading at $177 on Aug. 12.

Each lot is equivalent to 100 tonnes and is settled against the 62-percent iron ore index of Metal Bulletin .IO62-CNO=MB. Trading is from 10 a.m. to 8 p.m. (0200-1200 GMT).

Metal Bulletin's index, based on spot deals in China, stood at $177.29 on Thursday, its highest since Aug. 9.

"It will take some time before people start trading it. More people are into swaps and I don't think many people are even aware about SMX's iron ore futures," said a Singapore-based iron ore trader.

SMX's iron ore contract is the world's second futures contract after two exchanged in India launched the first in January.

"The SMX MBIO Index futures contract is only a week old, it will be prudent to comment on the trading volumes and traction seen only when we complete one month of trading," SMX said in a statement.

Unlike Indian contracts <0#ICIO:> <0#MRNE:>, which are denominated in rupees and are limited to domestic players, the SMX contracts will be priced in U.S. dollars and open to global investors.

But Indian futures are also suffering from low trading volumes being limited to domestic investors and as more market participants prefer the widely-traded forward swaps.

The volume of iron ore swaps cleared globally rose to an all-time high of more than 4 million tonnes in July, valued at more than $700 million. The bulk of that, or 3.92 million tonnes, was cleared by the Singapore Exchange.

Introduced in May 2008, iron ore swaps are cash-settled contracts that allow steelmakers and traders to hedge their cost after the industry abandoned a system of pricing contracts once a year in favour of a more flexible quarterly scheme.