SGX Iron Ore Derivatives – A Stellar Performance In 2013 Sets The Stage For Continual Growth

Singapore Exchange (SGX) ends a record year in 2013 for SGX Iron Ore Derivatives with resounding appreciation and a standing ovation for the strong support of all market participants. We step into the new year with market development initiatives that will drive continual market growth.

Record Performance In 2013

2013 is a consecutive record year for SGX Iron Ore derivatives (swaps, futures, and options), with total volume and open interest doubling to 590,648 contracts (269.0 million metric tons) and 73,072 contracts (28.8 million metric tons) year-on-year.

This volume growth was driven by swaps which grew more than doubled year-on-year. Options monthly volume in 2012 grew more than 10 times to 5,433 contracts (2.7 million metric tons) when compared to 2013 while open interest grew almost 20 times to 19,530 contracts (9.8 million metric tons). Meanwhile, the monthly volume of futures, newly launched in April 2013, grew more than 25 times to 21,677 contracts (2.2 million metric tons) in December 2013. Futures open interest stands at 19,327 contracts (1.9 million metric tons).

Volumes of SGX Iron Ore Derivatives in MT (thousands)	Open Interest of SGX Iron Ore Derivatives in MT (thousands)

Iron Ore Prices In 2014

The pertinent question at the start of a new year is the outlook on prices as traders formulate their trading strategy. It may be of interest to refer to a snap poll we conducted at the inaugural Singapore Iron Ore Week organized by SGX and CUSTEEL in May 2013. At the gala dinner, 338 revelers penned down their prediction on the average TSI Iron Ore 62% reference price for the year 2013, in hope of winning the prize of a mobile phone and a ticket to the conference this year. Let’s see how they have done:

Iron Ore Index Predictions at the Singapore Iron Ore Forum 2013

Comparison of Predictions Against Actual Prices

After a couple of drinks each, the gala dinner guests predicted that the average TSI Iron Ore 62% reference price for the year will fall from US$144.37 on 8 May 2013 to US$126.94 by the end of the year—suggesting a flattening of the forward curve. The following chart shows the actual SGX Iron Ore swaps/futures forward prices a month later (8 June 2013). The curve was indeed flatter than that on 8 May 2013.

SGX Iron Ore Swap/Futures Prices

We can draw an observation from these results – the dinner guests who had predicted that the cumulative average iron ore price was going to fall, could have also picked up a trading or hedging opportunity using SGX iron ore derivative contracts, by holding a short near month contract and a long far month contract. They could have gained significantly more than a mobile phone and a conference ticket!

The following chart shows the high, low and average of 2014 iron ore price forecasts by 10 analysts in a Bloomberg survey, alongside SGX Iron Ore swap/futures prices. Apart from the first quarter, the analysts’ average forecasts are relatively close to the SGX iron ore swaps/futures prices.

Comparison of Analysts’ Forecasts with Iron Ore 2014 Forward Curve

The above observations show that the SGX Iron Ore swap/futures prices are important reference  points for traders and hedgers looking to establish positions based on their view of the market. SGX Iron Ore derivatives allow you to take firm action on those views.

SGX Iron Ore swap/futures prices are published daily via email, SGX’s website (click here), Reuters: SZZF and Bloomberg: SCIA Index.

Highlights In 2014

Expect a full year ahead as SGX remains committed to bring you innovative new products including the SGX Hot-Rolled Coil Steel Futures and Swaps.

The main event to watch out for in the upcoming months is the Singapore Iron Ore Week 2014. Save the date for 6-8 May 2014 and watch this space for more details.