By Glenys Sim

May 5 (Bloomberg) -- Singapore Exchange Ltd.’s iron ore swaps volumes jumped to a record last month on increased demand from steel mills, traders and shipping companies in Asia.

Volumes climbed to 4,436 contracts in April, up 60 percent from a month earlier and 52 percent higher than the previous peak in November, SGX said today in an e-mailed statement. This is equivalent to 2.218 million metric tons, according to the SGX AsiaClear website.

Prices of the front-month contract, for ore with 62 percent iron content, reached a peak of $176 a ton on April 14, as demand in China, the biggest buyer, gained. SGX and rival exchanges in the U.S. and Europe are competing for business as producers like Germany’s biggest steelmaker ThyssenKrupp AG consider whether to use derivatives to fix iron ore costs, after a four-decade-old system that set prices each year collapsed.

The custom of selling iron ore based on annual benchmark pricing crumbled last year after Chinese steelmakers failed to agree on a rate with lead negotiator Rio Tinto Group. This was followed by BHP Billiton Ltd.’s move to cut the proportion of ore sold using the system.

Brazil’s Vale SA ended the system in March after it won a 90 percent price increase from Japanese steelmakers for the quarter starting April 1. Vale, Rio and BHP are the three largest suppliers of the raw material.

Deutsche Bank AG, together with Credit Suisse Group AG, started offering so-called iron-ore swaps in 2008 as mining companies tried to break the benchmark to take advantage of rising prices. Traditionally, about 80 percent has been sold on the annual benchmark, according to Freight Investor Services Ltd.

The size of each swap contract on the SGX is 500 tons with cash settlement based on the average of The Steel Index iron ore price in the expiring month. This price, which nearly tripled in the past year, is for ore with 62 percent iron content.

--Editor: James Poole

Sourced from www.businessweek.com