Comdaq create Forward Contract for Iron Ore

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Comdaq (comdaq.com) has created a new service on the back of its current Iron Ore Exchange. The new service is an Iron Ore Forward Contract facility added to the Comdaq physical exchange. This service will be launched on 14th February 2005

Over the last year Comdaq has seen interest on its iron ore exchange exceeding a billion dollars, reflecting just a proportion of the increased demand for steel, predominantly from China.

Adding this forward contract facility to their physical exchange Comdaq will assist customer matching. A specialist broking team will consolidate future buyer interest, and seek to match the requirement with notified availability.

Contracts will be allowed to choose a range of price options, being mainly either fixed or at market on delivery. To assist with the latter, Comdaq will be publishing a daily price on an FOB basis, also a shipping cost index. The details of this fix, and the associated differentials from the basis location and distance will be found on the Exchange open offers page for Iron Ore.

In the past many contracts have failed due to an imbalance of logistics, and a major element will be to ensure that sellers only notify availability on a date that they can ensure that the material is available, and that buyers only accept a contract when a ship is nominated.

The broking team will also seek to assist buyers and sellers with a negotiated swap option. It is recognised that forward commitment does need some flexibility, but initially such instruments can only be provided on a best endeavours basis. As liquidity develops, and as trust increases, it is expected that comprehensive trade support tools can be provided.

In addition to conventional letter of credit instruments, Comdaq will offer their settlement facility at http://www.fortescrow.com and will include a provision for sellers to receive loan credits from buyer deposits, whereby the seller will receive an advance at an agreed interest rate, and this will be credited to the buyers deposit within Fortescrow.

The combination of forward contracts, price information, negotiated swaps and seller finance will remove some of the uncertainties from a complex logistic delivery, complicated by a fast moving price market. The eventual objective will be to create exchange guaranteed contracts.

Further information. http://www.comdaq.com, white papers.

Settlement at http://www.fortescrow.com
Email, contact colin.howard@comdaq.net

Note to Editors. Interest at a billion dollars would represent the entire estimated “free” supply of Iron Ore, amounting to the 10% that is not controlled by either CVRD, Rio Tinto or BHP Billiton – or alternatively through Government controlled contracts. As such, it is probably not a transactable number, with agents duplicating entries. But this uncontracted element is in great demand at the moment, leading to huge price volatility and extensive defaults. The paradox is that the market could be better for sellers if it was trusted, and buyers could pay more if they were certain of supply. Thus discipline will lead to a virtuous cycle.

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Colin Howard
Comdaq Limited
44 -1483- 727906
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