Iron Ore Swaps Herald New Opportunities Globally

Introduction

The signing was announced last week of the first ever Japanese iron ore swap. This contract, between Mitsui and Credit Suisse, is designed to protect Mitsui against movements in the price of iron ore up until the end of 2010.

Iron ore markets have experienced increased price volatility during the past couple of years. This has been due partly to turbulence in global markets generally but also, due to a fundamental change that has recently taken place in the pricing practices for physical iron ore supply contracts. The abandonment of annual fixed price contracts between the major mining companies and steelmakers in favour of quarterly contracts priced off the iron ore spot market potentially exposes both sellers and buyers to greater price fluctuations. This change has brought market practice in the iron ore market back into step with that in other commodity markets and appears likely to trigger significant growth in the relatively underdeveloped iron