The signing of the first ever Japanese iron ore swap was
announced recently. 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 ore swaps market,
