UPDATE: CME To Launch Iron-Ore Swap Futures From July 11

U.S.-based CME Group Inc. (CME) Monday announced the launch of trading and clearing services for iron-ore swap futures with 62% ferrous content delivered into China, freight and insurance included.

Trading will begin July 11 for the first traded date of July 12 and contracts will be listed on the New York Mercantile Exchange and cleared through Clearport, CME said.

The contract will be cash settled against the Steel Index's daily spot price for iron-ore fines with 62% ferrous content delivered into China. It will be traded in lots of 500 dry metric tons with a minimum price fluctuation of $0.01 per tick.

The contract will be listed for 24 consecutive months, with August 2010 as the first listed contract month.

The announcement comes at a time when several exchanges have been vying for a share of the fledgling iron-ore swaps market. Deutsche Bank AG (DB, DBK.XE) and Credit Suisse Group (CS, CSGN.VX) launched over-the-counter swaps in May 2008 to help investors lock in profits and losses in a volatile market. Traded volumes have grown sufficiently since then to prompt three exchanges--the Singapore Exchange Ltd. (S68.SG), or SGX, LCH.Clearnet Group and IntercontinentalExchange Inc. (ICE), or ICE--to launch iron-ore swap clearing services.

Even the London Metal Exchange was considering plans to launch iron-ore futures.

"The growth potential in iron-ore swap trading is enormous," said Steven Randall, managing director of TSI. "In 2009, shipments of iron ore exceeded 900 million tons and there has been a transformation over recent months in the pricing mechanisms used throughout the physical market. These changes all support the continuing rapid growth in the trading of OTC iron-ore contracts to manage price risk."

This year, the world's three largest iron-ore mining companies--Brazil's Vale SA (VALE, VALE5.BR), Anglo-Australian BHP Billiton Ltd. (BHP, BHP.AU) and Rio Tinto PLC (RTP, RIO.LN)--all broke with a decades-old tradition of settling iron-ore prices on an annual basis with the world's largest steelmakers.

The three mining companies, which account for nearly 70% of the world's iron ore traded over seas, now settle contracts on a quarterly basis using spot iron-ore prices as a guide.

China, the world's largest consumer of iron ore, was initially opposed to quarterly priced iron-ore contracts but has subsequently acquiesced along with the rest of the steelmaking industry.

The TSI index is already used as a reference price by the Singapore Exchange and LCH.Clearnet to clear OTC iron-ore swaps. CME also offers customers the ability to trade futures for U.S. hot-rolled coil, a steel product generally made from iron ore.

The TSI's 62% ferrous iron-ore contract hit a record high of $186.50 a ton in April, more than triple the lows from 2009. Prices have since fallen, partly due to slower Chinese economic growth as a result of Chinese government monetary policy.

The TSI iron-ore contract was up 0.1% on the day at $144.3 a metric ton on Monday.

Iron ore is a key raw material used in steelmaking and China is the world's largest consumer of the mineral.

Company website: http://www.cmegroup.com

-By Alex MacDonald, Dow Jones Newswires; +44 (0)20 7842 9328; alex.macdonald@dowjones.com

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