) Clearport is the clearinghouse for two new iron ore average price
options contracts trading on the New York Mercantile Exchange
(NYMEX) as of March 14. CME is one of the largest exchanges in the
world for futures contracts and options, with main competitors
including NYSE Euronext (
) and new stock exchanges like BATS Global and Direct Edge.
We have a price estimate of $330 for CME's stock
, implying a roughly 10% premium to market price.
Two New Iron Ore Options Introduced
The two options contracts are based on average physical prices
as supplied by information providers The Steel Index and
CME executed its first trade on iron ore options contract on
March 18, in a deal brokered by Market Securities. CME Clearport
has actually previously cleared iron ore swaps, the first such
instance occurring in October last year.
Global Iron Ore Industry
Global iron ore production is dominated by three large companies
- Vale, Rio Tinto and BHP Billiton with 35.4% combined market share
in 2009. These three companies also control 61% of the world's
sea borne trade of iron ore.
CME's Average Daily Trading Volume of Commodity
In 2010, the iron ore mining industry discarded the annual price
benchmark system and moved to quarterly pricing, adding a new
level of price volatility to the market. As a result of the added
volatility, market participants will likely turn to swaps and
options to hedge their exposure to this risk.
The trading volume of iron ore swaps increased from about 7
million tons in 2009 to over 20 million tons in 2010. These volumes
have continued to climb and, according to one analyst, could see
annual totals double over the next five years.
Steel companies will also look to protect their margins and
stabilize prices by utilizing swaps and options as risk management
tools. The effect should contribute to sustained growth in CME's
average daily trading volume of commodity contracts, for which we
currently predict a rise from about 0.9 million in 2010 to about
2.4 million by the end of our forecast period.