Iron ore to debut on comexes

The national commodity exchanges, including the Multi Commodity Exchange (MCX) and the National Commodity & Derivatives Exchanges (NCDEX), are considering futures trading in iron ore.

However, they are awaiting the government's nod for the National Mineral Policy (NMP). The NMP, which advocates fair distribution of mines among potential miners and steel producers, is likely to be cleared soon.

"The exchanges will commence futures trading in iron ore within six months of NMP clearance," said an expert. The benchmark variety in iron ore is easier to identify than steel.

For instance, iron ore with 64 per cent of Fe content (fines) is understood to be the benchmark variety in the world market on Thursday. Finding steel's benchmark variety was a challenge which resulted into it debut being delayed by 5 years on the London Metal Exchange (LME).

"A unique price quotation model is adopted for iron ore procurement globally and, hence, the delivery of iron ore is much easier than steel," said a trader.

Therefore, the potential for futures in iron ore was much higher than steel and base metals, especially in India, said an analyst. LME launched steel futures last year and is now planning to launch a full-fledged steel exchange next year.

Commodity exchanges in India, however, have categorically insisted on sponge iron and steel futures in the non-ferrous metal section which have so far been proved unattractive by hedgers.

Exchanges have found in their feasibility studies that iron ore mines are not evenly distributed among diversified industry players. The ore's market is controlled largely either by the government or a section of industrialists. Therefore, a fair price discovery is impossible, said an NCDEX official.

An MCX official, however, preferred not to comment on the exchange's iron ore futures plan. India produces about 45 million tonnes of steel, 70 per cent of which is made from iron ore and the rest from scrap. The country possesses the world's third largest iron ore reserves.

Total iron ore exports during April-September this year stood at 37 million tonnes, as against 38.2 million tonnes last year.

THE ORE BUSINESS

National commodity exchanges are considering futures trading in iron ore

The benchmark variety in iron ore is easier to identify than steel

Potential for futures in iron ore much higher than steel and base metals in India

India produces about 45 mt of steel, 70 per cent of which is made from iron ore