December 10, 2013 / 5:45 PM / 4 years ago

Deutsche Bank pulls plug on iron ore swaps trade

LONDON, Dec 10 (Reuters) - Deutsche Bank AG has now closed its iron ore swaps business as part of an overall strategy to get out of physical commodities and maintain only a limited presence in commodity derivatives.

According to industry sources, Germany’s largest bank laid off its iron ore swaps team after announcing last week that it would exit commodities due to toughening regulations and diminished profits.

“Iron ore is not one of the derivatives Deutsche are staying in,” an industry source said.

A Deutsche Bank spokesman declined to comment.

The bank’s exit from iron ore derivatives follows Goldman Sachs and Morgan Stanley’s move to exit the business, and leaves only Credit Suisse and Macquarie as the main financial players in the space.

Deutsche said last week it will cut 200 jobs in energy, agriculture, base metals, coal and iron ore, retaining only precious metals and a limited number of financial derivatives traders.

Together with Credit Suisse, Deutsche was a pioneer of the iron ore swaps market in 2008, though industry participants insist its exit will have a negligible impact on volumes.

“Singapore Exchange (SGX) swaps volumes are up on a monthly basis ever since they started clearing,” another source said.

Other sources noted that most banks are already out of iron ore swaps, but there was still broad based interest from miners, merchants, steel mills, steel consumers and funds.

Up until China’s recent launch of an iron ore futures contract, SGX cleared over 90 percent of globally traded iron ore swaps, but volumes were still just a fraction of the 1 billion tonnes of physical iron ore traded globally each year.

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