SGX Iron Ore Derivatives: A Record-Breaking January

SGX Iron Ore Swap, Futures and Options (Derivatives) kicked off 2014 with record-breaking volumes and open interest across the board. January saw the largest monthly volumes and open interest for SGX Iron Ore Derivatives, driven by record monthly volume and open interest in both SGX’s Iron Ore swaps/futures and Iron Ore options.

Record-Breaking Performance in January 2014

As SGX Iron Ore swap and futures have similar contract specifications and are fully fungible, it is more meaningful to aggregate their volumes and open interest when determining their development.

SGX Iron Ore swaps/futures collectively grew 57% year-on-year. Meanwhile, volumes for Iron Ore options more than tripled over the same period. The higher volumes were also supported by corresponding growth of 55% for Iron Ore swaps/futures and 617% for Iron Ore options in open interest.

Price Preferences of Market Participants

This growth in SGX Iron Ore derivatives volumes and open interest came on the back of higher market volatility—suggesting that part of SGX’s relevance to participants lies in risk mitigation. In particular, SGX Iron Ore swaps and futures can be effective hedging tools as they are cash-settled against The Steel Index (TSI) Iron Ore 62% reference price and denominated in USD, as with industry practices in the physical market.

For January 2014, the observed volumes in SGX Iron Ore derivatives were contributed by Asian Steel mills and Traders (32%), and International Trading Houses and Producers (16%), Banks (46%) and Funds made up another 3% of the volumes.

Participant Mix for SGX Iron Ore Derivatives – Jan 2014

Launch of Hot-Rolled Coil Steel Index Futures

The launch of SGX Hot-Rolled Coil (HRC) Steel Index Futures on Monday, 17 February 2014, will complement our existing Iron Ore products.  Market participants holding opposite positions in steel and iron ore products (e.g. long SGX Iron Ore futures and short SGX HRC Steel futures) can also enjoy capital efficiencies delivered through margin credits of 50%.

The following table compares the specifications of the new SGX HRC Steel Index futures and swaps with that of SGX Iron Ore futures and swaps.