UTC+8 ( BJT)

Iron ore trading volumes in SGX and DCE diverge in July

Iron ore derivatives trading volumes on the Singapore Exchange and (SGX) Dalian Commodity Exchange (DCE) went different directions in July though both were in the same context of consistent rises in the prices of the core steelmaking raw material, highlighting their variation in the structure of investors and market outlook.

July had been a rather robust month for the seaborne iron ore prices for both 2019 and this year, when Mysteel’s SEADEX 62% Fe Australian Fines index hit $127.15/dmt CFR Qingdao on July 3 2019, a new high since January 17 2014, and it hovered above $115/dmt for the whole month.

The very SEADEX for July 2020 repeated a similar history by having recovered to and persisted above $100/dmt throughout the month, touching $112.6/dmt on July 15, or an 11-month high until then, despite all the challenges and uncertainties in the middle of the COVID-19.

The trading volume in SGX and DCE for July 2019 and July 2020 (‘000 lots)


Exchange

Product

Item

Jul 20

MoM

YoY

Jul 19

MoM

YoY

SGX

All (swaps, futures, and options)

Trading

1,848.3

13%

2%

1,810.1

-8%

90%

Open Interest

1,794.9

-3%

-9%

1,982.3

3%

64%

 

62% Fe iron ore contract

Trading

326.9

17%

10%

1,327.4

-10%

85%

Open Interest

693.7

1%

1%

686.5

4%

44%

DCE

Futures

Trading

23,308.5

-18%

-33%

34,517.2

23%

123%

Open Interest

922.9

-7%

-19%

1,135.7

-3%

73%

Note: lot size for both the SGX and DCE equals 100 tonnes.  

Source: SGX and DCE websites

In response to the rather firm prices, the trading volumes of SGX’s iron ore derivatives including futures, options, and swaps, posted year-on-year gains for both the years, and its key 62% Fe iron ore futures contracts followed the overall trend in response to a 9% on-month price rise to $107.74/dmt at the close of the July 31 trading.

Both the increases in the prices of the mainstream products and trading volumes were “supported by strong demand as China kick-starts its economy, and supply tightness from COVID-19 related disruptions,” , SGX said in its July monthly report.

“The rather robust trading for these two years have indicated the SGX investors’ bullishness towards the iron ore market in the near future, and they have even been changing their routines to follow up the Asian market closely,” a Singapore-based market watcher commented.

Normally, July is off-season for international financial institutions, the major investors of SGX iron ore derivatives, especially those in Europe, as July and August are when Westerners take their summer holidays, according to her.

In contrast, iron ore futures trading volume on the DCE posted declines both on month and on year for July 2020, according to the official data, in sharp contrast to the performance in July 2019.

“The Chinese futures market participants have shown growing cautiousness in trading volumes and open interests this year with the surging prices especially Beijing does not want to see too high a liquidity,” a Beijing-based iron ore analyst said.

Besides, “they have learned a lesson from last year when the prices exceeded $120/dmt in early July, the repeated warnings from the related governing bodies and association on speculative trading sent the prices down,” he explained.

Unlike SGX, the participants in DCE are including retail and institutional investors, most of whom are more sensitive to the Chinese steel fundamentals and hints in policies, Mysteel Global notes.

So far this year, many governing bodies including China’s National Development and Reform Commission, the Ministry of Industry and Information Technology, and the China Iron and Steel Association have already come forward, sternly warning of the irrationally high iron ore prices on many occasions, Mysteel Global noted.

By early August, DCE had limited the daily trading lots and open interest for the most-traded September and January iron ore futures contracts starting August 5, and it also reminded the futures companies of managing theirs risks and helping to safeguard the rationality in trading on August 6, which served as strong signals that the exchange were keen to cool down the overzealous trading in the iron ore futures.

The efforts and the warnings have reduced the DCE iron ore trading volumes and open interests, but “they have failed to chill the futures and spot prices of the iron ore market much so far, and the seaborne iron ore prices surged further this week,” the Beijing analyst pointed out last Friday.

On August 6, Mysteel’s SEADEX of the 62% Australian Fines reached $120.35/dmt CFR Qingdao, a new high since July 19 2019, and the PORTDEX of the 62% Australian Fines price hit a new high of Yuan 924/wmt ($133.1/wmt) FOT Qingdao and including the 13% VAT since November 18, 2013, according to the data.

This has come as little surprise, as for July 2020 and the rest of 2020, the market sentiment will stay positive towards the prices on the anticipation of Beijing’s unwavering efforts to stimulate its economy, rescuing the GDP from an on-year decline, Mysteel Global understood from the market.

By the end of June, China’s GDP still scored a 1.6% on-year drop, suggesting that Beijing will probably intensify the efforts, and the iron ore traders, financial institutions and funds, are thus betting on the resilience in the iron ore prices for the rest of the year, as the stimulus will lead to steel demand and solid demand for iron ore, according to the analysts.

In the first half of 2020, China’s crude steel output grew 1.4% on year to 499 million tonnes, and the country’s iron ore imports grew 11.8% on year over January-July to 659.6 million tonnes, according to China’s official data.

Written by Zhiyao Li, lizy@mysteel.com

Edited by Hongmei Li, li.hongmei@mysteel.com



Daily Prices

Prices Summarization