UPDATE: Iron Ore Derivatives Above $1 Billion For 1st Time In August

The nominal value of iron ore derivative contracts traded in August topped $1 billion for the first time in a single month, The Steel Index said Monday.

August iron ore trading volumes also set new records at over 6.6 million metric tons, an increase of more than 50% on the previous month, TSI said.

The majority of iron ore swap contracts were cleared by Singapore's SGX exchange, which processed 8,554 lots in August, the equivalent of 4.3 million tons, TSI said. This was 11% above the previous monthly record. The volume of SGX open interest--the total number of contracts that have yet to be closed or delivered on--also reached a record high of 8,661 lots, up 38% on the July peak, the company said.

An iron ore swap involves buying or selling at a fixed price against a floating price, like an index. Liquidity is still an issue for the iron ore swaps market, which Credit Suisse (CS) and Deutsche Bank AG (DB) pioneered a couple of years ago.

"Liquidity risk is starting to diminish, which should encourage a new wave of market participants entering in the coming months," said Gabrielle Richou, manager at the Iron Ore and Steel Derivatives Association.

CME Group also saw a marked increase in iron ore trading activity in August, clearing over 2 million tons of derivatives traded using TSI's iron ore index, of which 1.5 million tons were options, TSI said.

The Steel Index is one of several information providers that provides indexing for iron ore prices. It publishes two daily iron ore reference prices--one for iron ore fines, a type of iron ore product with 62% ferrous content and one for 58% ferrous content fines for Chinese imports.

-By Francesca Freeman, Dow Jones Newswires; +44 (0)20 7842 9412; francesca.freeman@dowjones.com

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