Credit Suisse and Deutsche launch OTC spot iron ore market

By Humeyra Pamuk

LONDON (Reuters) - Credit Suisse (CSGN.VX) and Deutsche Bank (DBKGn.DE) are launching an over-the-counter market for spot iron ore, as investors and industry participants are eager to trade the sky-high raw material.

In a joint statement, the banks said they will offer OTC, cash-settled swaps in iron ore across a range of maturities and the swaps will be settled on a monthly basis.

The swaps will be settled against the leading published indices, Metals Bulletin and Steel Business Briefing, against Spot Iron Ore, Delivered (CIF) China.

Iron ore prices are agreed to rise at least 65 percent between the world's top iron ore producer, Brazilian Vale (VALE5.SA) and Chinese mills, while for Australian iron ore the rise could be as high as 85 percent.

But the tools to manage this risk for those with exposure to the market have been limited, the banks said.

"This initiative provides the industry with risk management choices at a time of increased volatility and visibility along a forward curve for the first time," Adam Knight, managing director and co-head of Global Commodities at Credit Suisse, said.

With its 2 billion tonnes of annual global production, iron ore is one of the biggest physically traded commodity markets, while the annual output for steel stands around 1.3 billion tonnes.

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