The Singapore Exchange (SGX) will launch two coking coal swaps contracts in July settled against prices produced by The Steel Index (TSI), to capitalize on growing interest in steel raw materials derivatives, the exchange said in a statement Wednesday.
"The new coking coal contracts complement the existing iron ore derivatives and HRC steel derivatives contracts," SGX said, adding that the proposed products are subject to regulatory approvals.
"Significant margin savings and operational efficiencies" could be derived from the availability of the bulk commodities value chain on a single platform, the exchange said.
The SGX TSI Australia and China coking coal futures/swaps contracts will be cash settled against the arithmetic average of the premium coking coal (Australian Exports, FOB East Coast Australian port) index price and Premium JM25 coking coal (Chinese imports, CFR Jingtiang port) benchmarks.
The initiative comes as the physical market continues to move towards shorter-term pricing with more index-linked offers and deals taking place than ever before. In the first three months of this year, 28% of hard coking coal transactions observed by Platts were priced against spot indices.
SGX will list monthly contracts for the current year, plus the next full year up to 24 calendar months. Upon expiry of the December contract, another 12 months will be listed, the exchange said.
The swaps contracts will trade in 500 mt units, and futures in 100 mt units. They will be prices in $/mt, with minimum price ticks of $5/mt for swaps and $1/mt for futures.
The new contract based on a CFR China benchmark would be "an obvious draw" for Chinese steelmakers and traders, TSI director Tim Hard told Platts Wednesday.
Hard said the recent slide in physical prices and unabated supply are leading more producers and consumers to consider hedging.
SGX will be competing for liquidity against the Chicago Mercantile Exchange (CME), which launched the first cleared coking coal swap contracts about three years ago. Its main contract is priced against Platts' Premium Low Vol FOB Australia price assessment.
The total volumes cleared by the CME in April have increased substantially in recent months and reached 268,000 mt in April, compared to 157,000 in March, according to figures listed on the CME Group website.
This brought the total volumes traded so far this year to 817,000 mt- nearly five times the amount cleared in 2013.
