SINGAPORE (Commodity Online):There are a few hard commodities that doesn't have a futures market and until now iron ore was one of them. But unlike diamonds which also doesn't have futures, iron has more strategic importance in the industrial world. Iron ore is the primary raw material used in the production of steel -- and the world's second largest commodity by value, after crude oil. Because iron ore has historically traded under long-term fixed price contracts between steel mills and mining companies, iron ore is the world's largest commodity without a significant derivatives market.

Intercontinental Exchange (ICE) is all set to change the way iron ore will be traded as it launches iron ore swaps contract on December 2 in association with Platts. ICE OTC cleared iron ore contract based on the well-regarded Platts Iron Ore Index. The ICE Platts Iron Ore Swap 62% Fe (metallic iron) contract will be available for clearing on ICE Clear U.S.

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"As a major input to steel production, iron ore is essential to the global economy and is one of the largest commodities today without a fully developed derivatives market," said Mike Davis, Director of Market Development, ICE Futures Europe. "We have designed the contract to meet the requirements of participants in the iron ore and steel industries so that they are able to manage price risks around steel input costs, just as they have long been able to do with other factors of production such as oil and coal."

Iron ore is a mineral with metallic iron (Fe) content. High grade iron ore contains at least 60% Fe content, and the industry has adopted the 62% Fe specification as a standard benchmark for derivative transactions. The ICE Iron Ore Swap is based upon the most commonly traded grade of iron ore, referencing 62% Fe content delivered by sea to China. The contract will be cash settled against a daily index price published in Platts Metals Alert (PMA) under the heading 'IODEX: Iron Ore fines 62% Fe CFR North China'

Platts introduced to the global marketplace the world's first daily price assessments of seaborne iron ore in June 2008. "At that time, Platts recognized the importance of a fast-evolving spot market in iron ore, one of the largest commodity sectors globally," said Karen McBeth, editorial director of the Platts metals group. "After their introduction, our iron ore assessments quickly became the most important indicator of value at a time when the industry was changing its long-term contractual practices," she added.

Platts' price assessments are underpinned by a robust methodology of guidelines and quality protocols. Its IODEX assessments are based on all-day market monitoring and data collection of transactions, bids, offers and other information from market participants during the Asian business day until the market close at 18:30 Singapore time. The data is normalized and a neutral origin 62% Fe content iron ore fines price assessment is published immediately in Platts' Metals Alert (PMA), a real-time metals price and news wire service. The data is published again at the end of the U.S. trading day in Platts' Steel Markets Daily, an online and print publication that offers news, market commentary and price information aimed at the steel, construction and auto industries as well as commodities-focused money managers worldwide.

"The Platts daily IODEX assessment of iron ore delivered to China has not only received wide acceptance as an accurate and independent benchmark for pricing physical cargos, but has facilitated the very development of transparent price discovery in this burgeoning market," noted Francis Browne, director of steel and iron ore at Platts. "With ICE Clear's launch, the financial community will now be able to benefit from Platts' long experience in spot market valuation and have another tool to help address risk mitigation."

The global spot market for iron ore fines, a key steelmaking ingredient, is dominated by China's import market. China imported 471 million metric tons in 2008 and is on target to import 630 million metric tons this year to feed its growing steel demand, which is highly correlated to its economic growth.

Platts has been assessing prices in the metals markets for more than 35 years, drawing on the tradition of its parent company, The McGraw-Hill Companies, which has covered the metals markets since 1930.

Since its June 2008 introduction of daily seaborne iron ore assessments, Platts has rapidly expanded its offering for the iron ore market, which now includes price assessments for iron ore grades 62% Fe and 63.5/63% Fe, high-grade 65% Fe and a low-grade 58% Fe, as well as a daily 1% per Fe content differential for 60-63.5% iron ore fines to help clarify the normalization process. Platts also publishes daily freight netbacks based on the most liquid routes to five basis origins. A first-ever forward curve assessing the daily bid/offer and trade values in the over-the-counter swaps market for iron ore has also recently been launched. (Courtesy: PRNewswire)