Basis risk concerns melt Shanghai iron ore swap volumes

Market is "shrinking gradually", say dealers

iron ore
Evaporating liquidity: iron ore prices are sliding

Basis risk versus spot price, combined with falls in the underlying commodity price, is behind a precipitous decline in the volume of renminbi-denominated iron ore swaps traded on the Shanghai Clearing House (SCH).

SCH launched its contact in August 2014, and while daily traded volumes went as high as 10,496 contracts on March 30 this year, they have fallen significantly since. Data from Shanghai Suosuo Investment Management, a SCH-designated broker for iron ore swap trades, shows the product tr