Iron Ore: An Essential Commodity

Global Production and Consumption

• Iron ore is mined in 50 countries.
• Largest producers: Australia and Brazil.
• Over 2 billion tons mined annually.
• China is the largest consumer of iron ore.

Iron Ore Grades

• Graded by iron content percentage.
• Common grade: 62% iron content.
• Increasing demand for higher grade: 65% iron content.
• Pricing varies based on form: fines vs. lump product.

Usage in Steelmaking

• 98% of iron ore is used in steelmaking.
• Process:
  • Iron ore + coking coal → Pig iron in a blast furnace.
  • 1.6 tons of iron ore + 0.8 tons of coking coal = 1 ton of pig iron.
  • Pig iron is refined into different steel types.
• Main steel types:
  • Reba
  • Hot roll coil
  • Villains (varied uses: construction, cars, consumer products).
• Steel recycling is possible.

Market Volatility

• Iron ore market is volatile due to links with Asia’s fast-changing economy.
• Key sectors: mining, industrial manufacturing, real estate, construction, infrastructure.
• Iron ore serves as a barometer for Asia’s macro economy.

Risk Management and Hedging

• Essential due to price volatility.
• When prices increase:
  • Miners benefit, mills face higher costs.
• When prices decrease:
  • Mills benefit, miners face revenue pressure.
• Hedging methods:
  • Miners: sell futures or buy put options.
  • Mills: buy futures or buy call options.

SGX and Derivatives Market

• SGX clears over 1 billion tons of iron ore annually since 2015.
• Represents over 95% of international iron ore derivatives market.
• Clears 100% of international coking coal derivatives market.
• SGX offers up to 70% margin offsets for commodity trading.
• Promotes the "Virtual Steel Mill" concept.