Singapore Exchange lump premium futures open interest hits record high in July

Average daily open interest iron ore lump premium futures traded on the Singapore Exchange surged by more than 80% month over month to a record of 2.93 million metric tons in July, according to exchange data.

Total traded volumes increased 2% to 2.94 million mt in July from 2.88 million mt in June, SGX data showed.

Market participants attributed the rise in open interest for lump primarily to fund positioning rather than to changes in physical market fundamentals, despite worsening mill profitability.

"Open interest in lump premium derivatives rose sharply in July, but should not be seen as the market following a long trend," a North China-based trader said. "Lump premium activity is mainly driven by funds, and the higher open interest reflects a market with wide divergence in views, with both long and short participants actively expressing positions."

However, other sources said fundamentals, particularly supply-side constraints, are helping to support sentiment in the lump market.

"Supply tightness and limited availability at ports have continued to support lump premiums," a Singapore-based source said. "Lump demand has remained relatively resilient because pellet availability has been constrained by the lack of domestic concentrate, while direct-charge materials continue to enjoy stable baseline demand."

The dollar-denominated front-August lump premium futures prices on SGX settled at 22.50 cents/dry metric ton unit at the end of July, up 40.6% from 16 cents/dmtu at the end of June.

IODEX derivatives volume falls

Meanwhile, total trading volume of IODEX derivatives on the SGX, including iron ore futures and options, fell by 5% month over month in July to 502 million mt, with average daily open interest dipping by 3% to around 2.74 million mt, according to SGX data.

Volumes for IODEX futures contracts alone decreased 6.7% month over month to about 446 million mt in July, while average daily open interest fell 6% to just under 131 million mt, indicating lower participation across the futures market.

Market participants attributed the decline in derivatives activity to weak underlying iron ore fundamentals, lower participation in intraday trading and volatility spilling over from the oil market.

The dollar-denominated front-August IODEX futures contract on SGX settled at $95.75/dmt at the end of July, down 3.3% from $98.98/dmt at the end of June.

"The increase in open interest on the last day is mainly coming from fund positioning," the same Singapore-based trader source said. "Trading volumes have declined because there has been less volatility, while positioning has remained largely one-directional. The main drivers are the macro environment, seasonality in the iron ore market and the underlying fundamentals."

The same North China-based trader said: "July saw a noticeable shift where trading volume declined, which may suggest lower participation. One interpretation is that weaker iron ore prices and lower volatility reduced speculative interest in the ferrous markets."

"Commodity trading advisers continue to follow prevailing price trends rather than fundamentals and are adding short positions," an international trader said. "This has left SGX futures weaker relative to DCE futures, while physical prices have recovered compared with futures."