SGX iron ore derivatives trading volumes rise in June despite weaker fundamentals

Total trading volume of IODEX derivatives, which include iron ore futures and options, on the Singapore Exchange (SGX) rose nearly 10% in June to 530 million metric tons, after the extended Labor Day holidays in China weighed on activities in May, according to the latest data from the exchange.

Volumes for IODEX futures contracts increased by 8% in June to around 477 million mt, despite average daily open interest falling 16.5% month over month to just under 139 million mt in June, the data showed.

Trading volume increased while open interest took a back seat amid weaker iron ore demand as the steel sector entered its off-season, with mill margins worsening and high port inventories of medium-grade iron ore fines that deterred active physical buying.

The dollar-denominated front-June derivatives contract for IODEX futures traded on SGX stood at $100.20/dmt at the end of June, down 5.2% from $105.37/dmt at the end of May.

"The derivative market in June saw a sudden steep drop compared to May, and steel profitability was lackluster during that period, with consecutive coke price hikes worsening the situation," a North Asia-based trader said.

"Trading volumes in May were lower due to the Labor Day holidays and saw less volatility, while June prices dropped as a result of high port inventories and lower steel margins," a Singapore-based broker said.

Lump futures traded volume jumps

The traded volumes of iron ore lump futures more than doubled in June to 2.88 million mt, from around 1.28 million mt in May.

The total traded volume of iron ore lump futures rose sharply amid strong demand for physical lump cargoes, with prices for direct-charge materials climbing amid lower supply.

Meanwhile, average open interest in lump futures dropped by 13% to around 1.62 million mt in June, from 1.86 million mt in May, the SGX data showed.

Seaborne lump premiums gained traction over the month as depleting inventories at Chinese ports and demand for prompter cargoes drove lump prices, with transaction volumes increasing in the derivatives market as traders hedged their positions.

"Lump derivatives were following the physical trades, as physical premiums moved up a lot, so more speculative positions were taken," the same Singapore-based broker commented.

The seaborne lump premium was assessed at 18 cents/dmtu at the start of June and closed at 20 cents/dmtu on June 30, according to S&P Global Energy data.