Two banks offer price risk hedging for iron ore

May 23, 2008

May 23 (Purchasing.com) – Raw materials buyers at steel companies soon will be able to hedge exposure to iron ore prices through an over-the-counter market being developed by Credit Suisse and Deutsche Bank. This is the first time that liquidity is being provided in the iron ore mart.

 

The two large European banks soon will offer cash-settled swaps, settled monthly on the basis of iron ore indices published by the Steel Business Briefing online newsletter and the Metal Bulletin newspaper against spot iron ore, delivered (cif) China.

In a statement this morning, Adam Knight, co-head of global commodities at Credit Suisse, says the new contracts “will provide the industry with risk management possibilities at a time of increased volatility–with iron ore prices having seen a sharp increase for both contract and spot sales.” As reported earlier by Purchassing.com, with Brazilian iron ore firm Vale agreeing to a 65% increase in iron-ore prices with Asian steelmakers, market experts say steelmakers in Asia—and the U.S.—will see major cost increases this year.

Ray Key, managing director and head of metals trading at Deutsche Bank, says the launch of an over-the-counter market in iron ore “provides a unique opportunity for clients to reduce or gain exposure to iron ore price movements.” Knight notes that the new contracts also will provide price visibility into the future by offering a range of maturity dates.

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