August 2014

SGX Iron Ore

Monthly Report
Market Overview
SGX iron ore derivatives volumes totaled 34.5 mil mt in August, while open interest
averaged 57.3 mil mt during the month. Our suite of ferrous products provides market
participants with a wide range of trading strategies and risk management solutions.
SGX successfully launched Options on Iron Ore Futures on 25 August. The first trade
of 50,000 mt was brokered by SSY on 29 August.

Recent publications
Optionality in Iron Ore Prices
Trading the Hot Metal Spread
SGX HRC Steel: Underpinned
by Robust Fundamentals
The Nexus of Iron Ore Prices
SGX Coking Coal: The New
Bulk on the Block

Iron ore prices averaged $92.61per tonne for the month of August, down 3.6% from
July (and down 32.3% y/y) as sentiment was hit by weaker than expected economic
data, continued property market softness and ample supply.
Fears were rekindled over Chinas economic recovery as HSBC manufacturing PMI
unexpectedly fell to 50.2 in August. Property sales and construction activity remain
weak, and a continued slowdown in shadow financing may continue to hamper nearterm growth. Continued stimulus appears likely.

SGX iron ore derivative volumes

Iron ore volumes in August totaled 34.5 mil mt (+28% y/y), with open interest averaging 57.3 mil mt (+102% y/y). In
Jan-Aug 2014, volumes totaled 331.0mil mt, up 89% on the prior year. The proportion of futures continued to rise
to a record 45% of total swaps/futures volumes during the month.
Iron Ore Swaps/Futures* Volumes & Open
Interest
million mt
50
45
40
35
30
25
20
15
10
5
0

Iron Ore Options Volumes & Open Interest

million mt
30
25
20
15
10
5
0

Swaps

Futures

OI

*SGX iron ore swaps & futures are fully fungible and include margin
offset (close to 100%). Details on margin requirements are included at
the back of this report.
Source: SGX

Options

OI

Volume

Aug-14
Open Interest

Volume

Open Interest

YTD 2014
Volume

Iron Ore Swaps

33,563 contracts
(16.8 mil mt)

38,128 contracts
(19.1 mil mt)

45,610 contracts
(22.8 mil mt)

33,749 contracts
(16.9 mil mt)

402,445 contracts
(201.2 mil mt)

Iron Ore Options on Swaps

8,330 contracts
(4.2 mil mt)

51,408 contracts
(25.7 mil mt)

8,194 contracts
(4.1 mil mt)

22,697 contracts
(11.3 mil mt)

89,557 contracts
(44.8 mil mt)

135,988 contracts
(13.6 mil mt)

124,899 contracts
(12.5 mil mt)

0 contracts
(0.0 mil mt)

1,645 contracts
(0.2 mil mt)

849,153 contracts
(84.9 mil mt)

500 contracts
(0.1 mil mt)

500 contracts
(0.1 mil mt)

0 contracts
(0.0 mil mt)

0 contracts
(0.0 mil mt)

500 contracts
(0.1 mil mt)

Iron Ore Swaps/Futures

169,551 contracts
(30.4 mil mt)

163,027 contracts
(31.6 mil mt)

45,610 contracts
(22.8 mil mt)

35,394 contracts
(17.0 mil mt)

1,251,598 contracts
(286.1 mil mt)

Iron Ore Derivatives

178,381 contracts
(34.5 mil mt)

214,935 contracts
(57.3 mil mt)

53,804 contracts
(26.9 mil mt)

58,091 contracts
(28.4 mil mt)

1,341,655 contracts
(331.0 mil mt)

Iron Ore Futures

Iron Ore Options on Futures

Aug-13

*Open interest represents average for the month

**SGX iron ore swaps & futures are fully fungible and include margin offset. Details on margin requirements are included at the back of this report.

Importantly, volumes continue to grow along the entire forward curve enabling more effective hedging, represented by
a diverse mix of market participants.

SGX Iron Ore Forward Curve

Market Participant Mix (YTD)

Others
4%

US$ per
tonne
99

Banks
34%

Asian Steel
mills/Traders
30%

97
95
93
91
89
87

Funds
6%

85

31-Aug-14

International
Trading
House/Producer
26%

31-Jul-14

SGX 62% Fe Iron Ore Futures vs DCE 62% Fe

Iron Ore Futures
US$ per
tonne

Iron Ore Price Volatility (30-day annualized)

RMB per
tonne

130

950

125

900

120

40%
35%
30%

850

25%

110

800

20%

105

750

15%

700

10%

90

650

5%

85
Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14

600

0%

115

100
95

SGX

DCE

*September 2014 contracts

**DCE prices include VAT and port charges
Source: Bloomberg, SGX

SGX Iron Ore Active Mth Price

TSI Reference Price

Iron ore price recovery loses steam

Iron ores moderate recovery over June-July lost steam in August, falling throughout most of the month and closing
the month at $87.9/mt. Sentiment was hit by weaker than expected PMI data, continued weakness in the property
market and bankruptcy concerns among Chinese steel traders. However, steel output remains high and mill inventory
relatively lean. Views continue to be divided over the direction of iron ore prices in the near-term.
According to Custeel estimates, Chinese steel production hit a new record high in mid-August at 852 mil mt
annualised. Shanghai rebar prices were 0.7% lower on average than the previous month, while the iron ore price saw
a more significant 3.6% decline. Coupled with relatively stable coking coal prices in the month, this suggests
steelmaker margins remained strong (which would explain the record high steel output in mid-August).
Iron Ore Spot Price, CFR China
(62% Fe vs 58% Fe)

Iron Ore Inventory at Chinese Ports

US$ per
tonne
160

20%

150

18%

140

16%

130

million
tonnes
115
110
105
100
95
90
85
80
75
70

14%

120

12%

110

10%

100
90

8%

80

6%

70

4%

62% Fe

58% Fe

58% discount (RHS)

Source: Bloomberg, TSI, SGX

Source: Bloomberg, Steelhome, SGX

million
tonnes
75

Iron Ore Price vs Rebar

900
850

70

800
750

65

700
60

650
600

55

550
50

500

Monthly

Annualized (RHS)

Source: China National Bureau of Statistics, SGX

Thousands

Chinese Steel Production

US$ per
tonne
170
160
150
140
130
120
110
100
90
80

RMB per
tonne
4,400
4,200
4,000
3,800
3,600
3,400
3,200
3,000

Iron ore
Source: Bloomberg, TSI, SGX

Rebar

Growth Momentum Slowing; More Stimulus on the Cards?

Fears were rekindled over Chinas economic recovery in August as HSBC manufacturing PMI unexpectedly fell to
50.2, a three-month low. Output and new orders moderated while employment also fell at a faster pace than in July,
spurring expectations that more stimulus measures will be rolled out.
Recent monetary policy has provided a boost to infrastructure spending, however the real estate market remains in
the doldrums. As highlighted in previous reports, despite some easing in formal credit conditions, the continued
slowdown in shadow financing and the real estate market may continue to constrain near-term growth rates.

Chinese HSBC Manufacturing PMI

Citigroup Economic Surprise Index - China

100

53

75

52

50
51

25

50

49

-25
-50

48

-75
47

-100

46

-125

45

-150

Source: Bloomberg, SGX

Source: Bloomberg, Citigroup, SGX

SHIBOR

Chinese Total Social Financing

9%

RMB billion

8%

2,500

7%
6%
5%

2,000
1,500

4%
3%
2%

1,000
500

1%
0%

Source: Bloomberg, SGX

*3-month trailing average

Source: Bloomberg, China National Bureau of Statistics, SGX

Key news during the month

China
China PMI recovery reverses in August. HSBC manufacturing PMI fell to 50.2 in August (from 51.7 in July) as
both domestic and overseas orders growth slowed.
Chinas crude steel output hits new high in mid-August, at 2.335 mil mt/day (852 mil mt annualised), according
to Custeel estimates.
CISA expects Chinese crude steel output to reach 830 mil mt this year. Chinese domestic consumption
meanwhile shrank in Jan-Jul and exports continued to surge.
Steel exports not the solution for Chinese mills - CISA. Mills are being warned not to rely on exports to drive
their business moving forward, as the strategy is unlikely to guarantee their survival.
China crude iron ore output rises 11.4% y/y in July to 136.7 mil mt, though production was down 1.9% m/m.
Iron Ore Price to Average $100 in 2H14 - UBS, as the flood of supply growth out of Australia in early 2014 looks
largely complete.
Chinese steel exports surge in July. Finished steel exports rebounded to 8.06 mil mt in July, up 14% m/m and
56% y/y , after retreating slightly in June to 7.07 mil mt.
Australia
Spread between iron ore grades likely to narrow - Fortescue. The miner expects the 58%/62% Fe price spread
to narrow in the coming year as the supply-demand balance is restored.
Rio Tinto however sees more lower grade ore discounting. Rio expects recent discounting for lower grade iron
ore to continue as Chinese mills increasingly turn to higher grades to meet environmental targets.
Rio Tinto sees exit of 125 mil mt of high-cost iron ore supplies, as low-grade producers from China and less
traditional suppliers curtail production. The company reiterated its forecast of China reaching crude steel output of
1bn mt towards 2030 as the countrys urbanisation rate approaches 70%.
Chinese iron ore imports from Australia rise 33.5% y/y to 55.37 mil mt, accounting for 67% of total imports
during the month according to China Customs data.
BC Iron aims to buy rival for c.$240m. BCI launched a friendly cash and share offer for smaller rival Iron Ore
Holdings Ltd.
Brazil
Vale sees price improvement in 2H14. The company expects prices to fall less in 2H14 than in 1H14, and for
spot prices to hold at around $110 per tonne for the next few years.
Vale will hire more ships to increase CFR basis sales. Currently around 60% of its sales are on a CFR basis.
Anglo American makes first ore test delivery from Minas Rio. The project is expected to produce up to 14 mil
mt in 2015, and 18 months later is projected to reach total annual capacity of 26.5 mil mt.
Other
India to turn big importer of iron ore in FY15. According to press reports, India is expected to significantly
increase iron ore imports in FY15, driven by unstable domestic production, increased royalty rates and lower
international prices.
India can achieve 300 mil mt steel output by 2025 RINL.
ArcelorMittal ups global steel demand forecasts. The worlds largest steelmaker increased its global steel
consumption forecasts, forecasting growth of 3-3.5% in 2014, with indicators for the US and Europe looking
positive.
Source: Obtained from various web-based news sources

Margin Requirements
Contract Name

Iron Ore CFR China Swap / Option

Iron Ore CFR China Swap / Option
Iron Ore CFR China Swap / Option
Iron Ore CFR China Swap / Option
Iron Ore CFR China Swap / Option
Iron Ore CFR China Futures
Iron Ore CFR China Futures
Iron Ore CFR China Futures
Iron Ore CFR China Futures
Iron Ore CFR China Futures
Australia Premium Coking Coal Swap
Australia Premium Coking Coal Futures
China Premium JM25 Coking Coal Swap
China Premium JM25 Coking Coal Futures
Hot-Rolled Coil Steel CFR ASEAN Swap
Hot-Rolled Coil Steel CFR ASEAN Futures

Currency Tier

USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD

1
2
3
4
5
1
2
3
4
5
1
1
1
1
1
1

Contract
month
(From)
Aug-14
Oct-14
Jan-15
Apr-15
Jul-15
Aug-14
Oct-14
Jan-15
Apr-15
Jul-15
Aug-14
Aug-14
Aug-14
Aug-14
Aug-14
Aug-14

Contract
month
(To)
Sep-14
Dec-14
Mar-15
Jun-15
Dec-99
Sep-14
Dec-14
Mar-15
Jun-15
Dec-99
Dec-99
Dec-99
Dec-99
Dec-99
Dec-99
Dec-99

Maint.
Margin

3,300
3,200
3,200
2,800
2,500
660
640
640
560
500
5,300
1,060
5,300
1,060
800
800

Initial
Margin

Initial to
Maint. Ratio

3,630
3,520
3,520
3,080
2,750
726
704
704
616
550
5,830
1,166
5,830
1,166
880
880

1.1
1.1
1.1
1.1
1.1
1.1
1.1
1.1
1.1
1.1
1.1
1.1
1.1
1.1
1.1
1.1

*Margin offsets are available for opposite swap/futures positions in the same underlying commodity
**Up to 50% margin offset is available for opposite positions in iron ore and hot-rolled coil steel; up to 50% margin offset is available for
opposite positions in iron ore and coking coal; up to 70% margin offset is available for opposite positions in FOB/CFR coking coal contracts
*** SGX margin schedules are revised bimonthly. Latest schedules can be found on our website here
Source: SGX

Contact
Tan Say Liang Commodities
tel: +65 6236 5130
email: sayliang.tan@sgx.com

Brenna Koh International Sales

tel: +65 6236 8827
email: brenna.koh@sgx.com

Adrian Lunt Commodities

tel: +65 6236 8365
email: adrian.lunt@sgx.com

Kenny Groth International Sales

tel: +44 0 207 965 4469
email: kenny.groth@sgx.com

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