SGX lump premium futures open interest jumps in Sept despite weak sentiment

Total traded volume for SGX iron ore lump premium futures declined 2.2% month over month to 3.42 million metric tons in September, while average daily open interest increased by 21.3% to 3.28 million mt from around 2.71 million mt in August, exchange data showed.

The rise in open interest largely stemmed from divergence in speculative positions, while the physical lump market generally saw prices weaken in the spot market, a North-Asia-based trader said.

"While most are bearish for lump overall, I still see some support for lump premiums. With hot metal output from mills remaining stable-to-weak and the underlying 61% Fe iron ore price weakening, lump premiums should receive some support," the same North-Asia-based trader added.

A Singapore-based trader, however, pointed to hedging activity rather than outright positioning as the main driver for stronger open interest, with higher-than-expected forward price levels in September creating incentives for suppliers and traders to hedge. "However, that interest appears to have been largely price-driven, and current levels are not as attractive as they were in September," the Singapore-based trader added.

The dollar-denominated front-September SGX lump premium futures contract settled at 23.50 cents/dmtu at the end of September, down 7.8% from 25.50 cents/dmtu at the end of August.

IODEX derivatives volume picks up despite weaker prices

Meanwhile, total SGX IODEX derivatives trading volume, including futures and options, increased 6.4% month over month to 498 million mt in September, while average daily open interest decreased 4.4% to around 289 million mt.

IODEX futures volumes alone increased by 11.4% month over month to 460 million mt, while average daily open interest declined by less than 1% to just under 135 million mt.

The front-October SGX IODEX futures contract settled at $93.24/dmt at the end of September, down 6.2% from $99.36/dmt at the end of August.

"Both the closing of positions by traders and less hedging flow from suppliers contributed to lower open interest in September," an international trader said, adding that weaker iron ore prices overall had also encouraged higher traded volumes as participants adjusted their positions.

"While lump premium open interest was supported by hedging demand, IODEX open interest declined as suppliers had less incentive to hedge and some traders unwound positions," said the same Singapore-based trader.