(EnergyAsia, May 14 2013, Tuesday) — Singapore Exchange said it has signed a memorandum of understanding (MOU) with China Beijing International Mining Exchange (CBMX) to jointly develop iron ore trading to serve the Chinese and international markets.

SGX President Magnus Bocker and CBMX President Dong Chaobin signed the agreement at Singapore Iron Ore Week 2013 in Singapore last week.

According to the MOU, the two exchanges will look into jointly developing products and markets, as well as information sharing. They will also explore a medium-term roadmap towards improving interaction and risk-transfer between the spot and derivatives markets.

An important “first” in the global iron ore market, this landmark agreement brings together an international derivatives clearing platform with a Chinese physical spot trading platform.

The physical iron ore seaborne market in Asia has seen significant growth in the last few years, driven by China’s continued industrial development and demand for steel production. The derivatives market has developed alongside as the complementary risk-management and hedging tool against price volatility.

SGX said it cleared a record 109 million metric tonnes of iron ore swaps in 2012, up almost 2.5 times from the previous year’s volume.

CBMX operates the iron ore spot trading platform in China, which was jointly initiated by China Iron and Steel Association (CISA) and China Chamber of Commerce of Metals Minerals and Chemicals Importers and Exporters (CCCMC). Launched last May, the platform has traded more than 13 million metric tonnes of iron ore, and generated a following both for its trading pattern and base prices.

SGX owns and operates AsiaClear, a pioneer commodities over-the-counter (OTC) service in Asia that claims to clear more than 90% world’s iron ore swap trades.

“As the only iron ore spot trading platform in China, we hope that through cooperation with SGX, we can promote the use of both the spot and derivatives platforms as trading and risk management tools. This will help iron ore market participants to achieve effective and efficient interaction between the spot and financial derivatives markets,” said Mr Dong.

“Through this agreement, we continue to build on our commitment to expand the reach of our markets and clearing capabilities to Asia and globally. Closer collaboration between the various physical marketplaces and our derivatives market sets an ideal foundation for growth. It also aligns our respective platforms more effectively to the benefit of all market participants. We look forward to working closely with CBMX,” said Mr Bocker.