Daily Update: The Evolution of Iron Ore Derivatives
Today is Friday, July 21, 2023, and here’s your curated selection of essential intelligence on financial markets and the global economy from S&P Global . Subscribe to be notified of each new Daily Update.
Iron ore prices are volatile, and historically, market participants could only gain exposure to the iron ore market through buying stock in metals and mining companies. But the market changed significantly in the late 2010s, allowing greater flexibility for market participants to gain direct exposure to iron ore and manage risk related to price volatility.
Until as recently as 2009, the iron ore price was fixed via an annual benchmark system subject to lengthy negotiations between mining and steel companies. The iron ore market was opaque and price information was sparse until June 2008, when Platts, now part of S&P Global Commodity Insights, launched the world's first daily price assessment. Since then, the iron ore information landscape has grown significantly.
With more information, the annual benchmark pricing mechanism quickly gave way to one based on averaging daily spot indexes that reflect supply-demand dynamics. Also in 2008, Credit Suisse and Deutsche Bank launched an over-the-counter iron ore swaps market, catalyzing derivatives dominated by futures and options contracts listed on the Singapore Exchange and Dalian Commodity Exchange.
In 2022, iron ore derivatives cleared on the Singapore Exchange soared 41.2% to 3.04 billion metric tons, nearly twice the size of the underlying physical trade. On the Dalian Commodity Exchange, the volume of futures and options traded in 2022 was 26.3 billion metric tons, 17 times the size of total physical seaborne trade.
Exploration budgets have risen too, reaching a seven-year high of $713 million in 2022. Given the challenging outlook for iron ore demand in the first half of 2023, S&P Global Commodity Insights expects iron ore exploration to trend downward in 2023. Budgets are expected to slow in the short and medium term as iron ore supply is forecast to outpace falling demand and create surpluses as early as 2026. S&P Global Commodity Insights analysts forecast the Platts 62% Fe iron ore index to average $120 per metric ton, including cost and freight, in 2023.
Today is Friday, July 21, 2023, and here is today’s essential intelligence.
Written by Wyatt Scott.
Economy
Economic Research: European Housing Markets: Sustained Correction Ahead
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—Read the report from S&P Global Ratings
Capital Markets
A Ray Of Sunshine For Florida's Troubled Residential Property Insurance Market
For the first time in three years, Florida's struggling domestic residential property insurers have posted a quarterly profit. Excluding Citizens Property Insurance Corp., Florida property insurers reported $38.6 million in profit in the first quarter of 2023, according to an analysis conducted by S&P Global Market Intelligence. That compares to a loss of almost $120 million a year earlier. Reporting periods may not include the same number of companies, as nine P&C insurers focused on Florida have become insolvent since 2021, while others have entered the market.
—Read the article from S&P Global Market Intelligence
Global Trade
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—Read the article from S&P Global Market Intelligence
Sustainability
iBoxx Sovereign Debt Indexing With ESG Scores And Green Bonds
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—Read the article from S&P Dow Jones Indices
Energy & Commodities
Listen: Nigeria: Another Force Majeure At Forcados?
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—Listen and subscribe to Platts Oil Markets, a podcast from S&P Global Commodity Insights
Technology & Media
Listen: Attitudes About AI
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—Listen and subscribe to Next in Tech, a podcast from S&P Global Market Intelligence
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