SGX iron ore derivatives open interest grows

Open interest of iron ore derivatives on the Singapore Exchange (SGX) rose 14% to 103.54 million tonnes as at January 30, according to the bourse.

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This compares with 90.79 million tonnes as at December 31, and 32 million tonnes at the end of January last year.

The Southeast Asian exchange cleared 54.68 million tonnes of iron ore swaps and futures last month, up from 43.64 million tonnes in December. It also cleared 22.61 million tonnes of swaps options and futures options, up from December’s 7.77 million tonnes.

Separately, open interest of iron ore futures on the Dalian Commodity Exchange (DCE) stood at 61 million tonnes at the end of January. This is down from 87.5 million tonnes at the end of December last year.

Market sources believe the drop in open interest on the DCE was due to the speculative and retail nature of the contracts and distractions from other markets.

“The unilateral downward movement in the iron ore market has ended and there is less trading opportunities in a narrowly fluctuating futures market,” Xia Junyan, a senior analyst at Everbright Futures, told Steel First.

“Speculative funds have entered other places like stock indices, et cetera. It is a vicious circle – low trading volume makes it more difficult to close a position and therefore pushes more money away from the trading of iron ore futures,” he said.

The majority of participants in the DCE iron ore futures are retail investors while physical users – steel mills, traders and producers – account for around 60% of the SGX iron ore derivatives participant base.

Last week, the SGX said it would launch two 58% Fe iron ore derivatives contracts on March 9. The exchange will offer a cash-settled swaps contract and a cash-settled futures contract based on Metal Bulletin’s 58% Fe Premium Index.