Coking Coal Swaps Market To See Rapid Growth -Credit Suisse Executive

The market for coking coal swaps will grow rapidly in the near term as steel market participants seek to hedge their exposure to volatile raw materials costs, a senior executive at Credit Suisse said Monday.

Kristian Thunes, the bank's global head of freight and iron ore in Singapore, told Dow Jones Newswires that recent turbulence in commodity markets will boost volumes.

He was speaking after the launch of CME Group's (CME) OTC cleared contract for coking coal swaps.

"More and more people do like clearing their raw material costs," he said.

Earlier in the day, Credit Suisse completed the first swap on CME's new Nymex-listed Australian Coking Coal (Platts) Low Vol Swap Futures (ALW) contract.

Credit Suisse and an unnamed coal market participant completed a 60,000-metric-ton transaction that allows the bank's counterparty to swap exposure to floating coking coal prices for exposure to a fixed price.

"We have been working in the iron ore market for four years, so the next obvious question for our clients was how we were going to work on their exposures to met coal," Thunes said, describing the development of coking coal swaps as a "very natural next step."

The coking coal swaps market will see the same strong growth as iron ore swaps have since they were launched, Thunes said. Credit Suisse has been involved with iron ore swaps since 2008.

"We aim to continue to lead in the coking coal swaps market, but the market will need other participants to grow. Indeed, the more participants, the merrier," he said.

"Everyone trading iron ore probably has some form of met coal exposure, so we think the growth in iron ore swaps is probably a good indicator of how big this market can become."

On Aug. 23, CME cleared a record 120 lots of Iron Ore 62% Fe (TSI) swap options, representing 60,000 tons, a spokesman for the exchange operator said Monday.

Thunes said some steel mills are cautious about using raw material derivatives, but other end-users, including car manufacturers, already have sophisticated index-linked raw materials pricing systems in place.

As a proportion of total costs, coking coal represents around 20% for hot-rolled coils, while iron ore represents around 30%, Thunes said.

-By Clementine Wallop; Dow Jones Newswires; 65 46154 082; clementine.wallop@dowjones.com

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