ICEX sees robust iron ore futures on Japan demand

MUMBAI Thu Mar 24, 2011 6:29am EDT

MUMBAI (Reuters) - Increased demand from Japan will lead to "robust growth" in iron ore futures contracts at the Indian Commodity Exchange (ICEX), its chief executive said on Thursday, spurring volumes by up to 20 percent in 2011/12.

Rajnikant Patel, ICEX managing director and chief executive, told Reuters that as Japan rebuilds its disaster-hit infrastructure, Indian hedgers supplying to that country would drive up iron ore futures volumes.

"Rebuilding of Japan will stimulate the iron ore trade once again, which is sure to get reflected on our platform in terms of higher volume and increasing participation," Patel told the Reuters Global Mining and Steel Summit.

ICEX launched iron ore futures in January. However volumes and prices have been lackluster as foreign firms cannot trade futures on the exchange, though Patel predicted volume growth of 20 percent in the year starting April 1, as new contracts such as low-grade iron ore are offered.

ICEX iron ore prices have shed just 3.2 percent since the start of the contract to levels now around 7,600 rupees ($170) a tonne.

Spot iron ore prices .IO62-CNI=SI now trade around $165.50 a tonne, down from record highs near $200 a tonne in mid-February as slow Chinese steel demand turned off buyers.

ICEX will also face competition soon from the Singapore Mercantile Exchange which plans to launch an iron ore futures contract in early May following expected regulatory approvals.

Steelmakers in quake-hit Japan expect a long-elusive spike in domestic demand as the country prepares for the colossal task of rebuilding everything from homes to power plants.

India, the world's third-biggest exporter of iron ore, ships about 5.5 million tonnes, more than 90 percent of it to China and sends about 5 percent to Japanese companies like Nippon Steel Corp (5401.T), Sumitomo Metal Industries Ltd 5405.T and JFE Steel Corp (5411.T)

India's top iron ore miner, NMDC, (NMDC.BO) also expects to renew Japanese contracts soon.

Iron ore trade on ICEX accounts for around 80 percent of the trade on futures platform, and the rest is held by Multi Commodity Exchange, the country's biggest by turnover.

The exchange currently draws participation from miners, mostly exporters of the 200-member strong Federation of Indian Minerals Association (FIMI).

"As the awareness of the contracts spread naturally we will see more and more participation coming from physical players including corporate," said Patel.

In addition to the 62 percent grade ore, the exchange also plans to start low grade iron ore contracts in the short-term.

"Launching of the other ore related products is a part of our long-term product strategy," said Patel.

(Editing by Krittivas Mukherjee; Editing by Ed Lane)

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