Iron Ore Monthly Report (Aug 14)

8/10/2019 Iron Ore Monthly Report (Aug 14)

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SGX Iron OreMonthly Report

Market Overview

SGX iron ore derivatives volumes totaled 34.5 mil mt in August, while open interestaveraged 57.3 mil mt during the month. Our suite of ferrous products provides marketparticipants with a wide range of trading strategies and risk management solutions.

SGX successfully launched Options on Iron Ore Futures on 25 August. The first tradeof 50,000 mt was brokered by SSY on 29 August.

Iron ore prices averaged $92.61per tonne for the month of August, down 3.6% fromJuly (and down 32.3% y/y) as sentiment was hit by weaker than expected economicdata, continued property market softness and ample supply.

Fears were rekindled over Chinas economic recovery as HSBC manufacturing PMIunexpectedly fell to 50.2 in August. Property sales and construction activity remainweak, and a continued slowdown in shadow financing may continue to hamper near-term growth. Continued stimulus appears likely.

August 2014

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

SGX iron ore derivative volumesIron 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

Iron Ore Options Volumes & Open Interest

*SGX iron ore swaps & futures are fully fungible and include marginoffset (close to 100%). Details on margin requirements are included at

the back of this report.

Source: SGX

0

5

10

15

20

25

30

35

40

45

50million mt

Swaps Futures OI

0

5

10

15

20

25

30million mt

Options OI
http://www.sgx.com/wps/wcm/connect/sgx_en/home/newsflash/MU_27082014_Commdities_01http://www.sgx.com/wps/wcm/connect/sgx_en/home/newsflash/20140821_HotMetalhttp://www.sgx.com/wps/wcm/connect/sgx_en/home/newsflash/MU_3172014_1_CNhttp://www.sgx.com/wps/wcm/connect/sgx_en/home/newsflash/MU_14082014_2http://www.sgx.com/wps/wcm/connect/sgx_en/home/newsflash/MU_14082014_2http://www.sgx.com/wps/wcm/connect/sgx_en/home/newsflash/MU_08082014_1http://www.sgx.com/wps/wcm/connect/sgx_en/home/newsflash/MU_3172014_1_CNhttp://www.sgx.com/wps/wcm/connect/sgx_en/home/newsflash/MU_3172014_1_CNhttp://www.sgx.com/wps/wcm/connect/sgx_en/home/newsflash/MU_3172014_1_CNhttp://www.sgx.com/wps/wcm/connect/sgx_en/home/newsflash/MU_3172014_1_CNhttp://www.sgx.com/wps/wcm/connect/sgx_en/home/newsflash/MU_3172014_1_CNhttp://www.sgx.com/wps/wcm/connect/sgx_en/home/newsflash/MU_3172014_1_CNhttp://www.sgx.com/wps/wcm/connect/sgx_en/home/newsflash/MU_3172014_1_CNhttp://www.sgx.com/wps/wcm/connect/sgx_en/home/newsflash/MU_08082014_1http://www.sgx.com/wps/wcm/connect/sgx_en/home/newsflash/MU_14082014_2http://www.sgx.com/wps/wcm/connect/sgx_en/home/newsflash/MU_14082014_2http://www.sgx.com/wps/wcm/connect/sgx_en/home/newsflash/MU_3172014_1_CNhttp://www.sgx.com/wps/wcm/connect/sgx_en/home/newsflash/20140821_HotMetalhttp://www.sgx.com/wps/wcm/connect/sgx_en/home/newsflash/MU_27082014_Commdities_01


2/6

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

SGX Iron Ore Forward Curve Market Participant Mix (YTD)

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

Iron Ore Futures

Iron Ore Price Volatility (30-day annualized)

*September 2014 contracts**DCE prices include VAT and port chargesSource: Bloomberg, SGX

600

650

700

750

800

850

900

950

85

90

95

100

105

110

115

120125

130

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

RMB pertonne

US$ pertonne

SGX DCE

0%

5%

10%

15%

20%

25%

30%

35%

40%

SGX Iron Ore Active Mth Price TSI Reference Price

85

87

89

91

93

95

97

99

US$ pertonne

31-Aug-14 31-Jul-14

Banks34%

International

TradingHouse/Producer26%

Funds6%

Asian Steelmills/Traders

30%

Others4%

Volume Open Interest Volume Open Interest Volume

Iron Ore Swaps33,563 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 Swaps8,330 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)

Iron Ore Futures135,988 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)

Iron Ore Options on Futures 500 contracts(0.1 mil mt)

500 contracts(0.1 mil mt)




Iron Ore Swaps/Futures169,551 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 Derivatives178,381 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)

*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.

A ug-14 Aug-13 YTD 2014


3/6

Iron ore price recovery loses steam

Iron ores moderate recovery over June-July lost steam in August, falling throughout most of the month and closingthe month at $87.9/mt. Sentiment was hit by weaker than expected PMI data, continued weakness in the propertymarket and bankruptcy concerns among Chinese steel traders. However, steel output remains high and mill inventoryrelatively 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 mtannualised. Shanghai rebar prices were 0.7% lower on average than the previous month, while the iron ore price sawa more significant 3.6% decline. Coupled with relatively stable coking coal prices in the month, this suggestssteelmaker 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

Chinese Steel Production Iron Ore Price vs Rebar

Source: China National Bureau of Statistics, SGX

Source: Bloomberg, TSI, SGX Source: Bloomberg, Steelhome, SGX

Source: Bloomberg, TSI, SGX

70

75

80

85

90

95

100

105

110

115

milliontonnes

500

550

600650

700

750

800

850

900

50

55

60

65

70

75

milliontonnes

Monthly Annualized (RHS)

3,000

3,200

3,400

3,600

3,800

4,000

4,200

4,400

80

90

100110

120

130

140

150

160

170

RMB pertonne

US$ pertonne

Iron ore Rebar

4%

6%

8%

10%

12%

14%

16%

18%

20%

70

80

90

100

110

120

130

140

150

160

US$ pertonne

62% Fe 58% Fe 58% discount (RHS)


4/6

Growth Momentum Slowing; More Stimulus on the Cards?

Fears were rekindled over Chinas economic recovery in August as HSBC manufacturing PMI unexpectedly fell to50.2, 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 inthe doldrums. As highlighted in previous reports, despite some easing in formal credit conditions, the continuedslowdown 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

SHIBOR Chinese Total Social Financing

Source: Bloomberg, SGX

Source: Bloomberg, SGX Source: Bloomberg, Citigroup, SGX

*3-month trailing average

Source: Bloomberg, China National Bureau of Statistics, SGX

45

46

47

48

49

50

51

52

53

-150

-125

-100

-75

-50

-25

0

25

50

75

100

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

0

500

1,000

1,500

2,000

2,500

RMB billion


5/6

Key news during the month

China

China PMI recovery reverses in Au gus t. 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 Ch inese crude steel outpu t to reach 830 mil m t this year. Chinese domestic consumption

meanwhile shrank in Jan-Jul and exports continued to surge.

Steel exports n ot the solu tion fo r Chinese mil ls - 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 o re output r ises 11.4% y/y in Ju ly to 136.7 mil mt, though production was down 1.9% m/m.

Iron Or e Price to A verage $100 in 2H14 - UBS, as the flood of supply growth out of Australia in early 2014 looks

largely complete.

Chinese steel exports s urge in July . Finished steel exports rebounded to 8.06 mil mt in July, up 14% m/m and56% y/y , after retreating slightly in June to 7.07 mil mt.

Australia

Spread between iron ore grades likely to narrow - Fortescu e. The miner expects the 58%/62% Fe price spread

to narrow in the coming year as the supply-demand balance is restored.

Rio Tinto how ever sees more lower grade ore discount ing .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 o re suppl ies, 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 imp orts fr om Aus tralia rise 33.5% y/y to 55.37 mil m t, accounting for 67% of total imports

during the month according to China Customs data.

BC Iron aims to bu y rival for c .$240m. BCI launched a friendly cash and share offer for smaller rival Iron Ore

Holdings Ltd.

Brazil

Vale sees price im prov ement 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 wil l hir e more sh ips to increase CFR basis sales. Currently around 60% of its sales are on a CFR basis.

Anglo American makes f i rst ore test del ivery from Minas Rio. The project is expected to produce up to 14 milmt in 2015, and 18 months later is projected to reach total annual capacity of 26.5 mil mt.

Other

India to turn big imp orter 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 m t steel outpu t by 2025RINL.

ArcelorMittal ups g lobal steel demand fo recasts. 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


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Contact

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address the specific investment objectives, financial situation or particular needs of any person. Advice should be sought from a financial adviser regarding the suitability of

any investment product before investing or adopting any investment strategies. Further information on this investment product may be obtained from www.sgx.com.

Investment products are subject to significant investment risks, including the possible loss of the principal amount invested. Past performance of investment products is

not indicative of their future performance.Examples provided are for illustrative purposes only. While SGX and its affiliates have taken reasonable care to ensure the

accuracy and completeness of the information provided, they will not be liable for any loss or damage of any kind (whether direct, indirect or consequential losses or other

economic loss of any kind) suffered due to any omission, error, inaccuracy, incompleteness, or otherwise, any reliance on such information. Neither SGX nor any of its

affiliates shall be liable for the content of information provided by third parties. SGX and its affiliates may deal in investment products in the usual course of their business,

and may be on the opposite side of any trades. SGX is an exempt financial adviser under the Financial Advisers Act (Cap. 110) of Singapore. The information in this

document is subject to change without notice.

Tan Say Liang Commodities

tel: +65 6236 5130

email: [email protected]

Adrian Lunt Commodities

tel: +65 6236 8365


Brenna Koh International Sales

tel: +65 6236 8827


Kenny Groth International Sales

tel: +44 0 207 965 4469


Margin Requirements

*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 hereSource: SGX

Contract Name Currency Tier

Contract

month

(From)

Contract

month

(To)

Maint.

Margin

Initial

Margin

Initial to

Maint. Ratio

Iron Ore CFR China Swap / Option USD 1 Aug-14 Sep-14 3,300 3,630 1.1Iron Ore CFR China Swap / Option USD 2 Oct-14 Dec-14 3,200 3,520 1.1

Iron Ore CFR China Swap / Option USD 3 Jan-15 Mar-15 3,200 3,520 1.1

Iron Ore CFR China Swap / Option USD 4 Apr-15 Jun-15 2,800 3,080 1.1

Iron Ore CFR China Swap / Option USD 5 Jul-15 Dec-99 2,500 2,750 1.1

Iron Ore CFR China Futures USD 1 Aug-14 Sep-14 660 726 1.1

Iron Ore CFR China Futures USD 2 Oct-14 Dec-14 640 704 1.1

Iron Ore CFR China Futures USD 3 Jan-15 Mar-15 640 704 1.1

Iron Ore CFR China Futures USD 4 Apr-15 Jun-15 560 616 1.1

Iron Ore CFR China Futures USD 5 Jul-15 Dec-99 500 550 1.1

Australia Premium Coking Coal Swap USD 1 Aug-14 Dec-99 5,300 5,830 1.1Australia Premium Coking Coal Futures USD 1 Aug-14 Dec-99 1,060 1,166 1.1

China Premium JM25 Coking Coal Swap USD 1 Aug-14 Dec-99 5,300 5,830 1.1

China Premium JM25 Coking Coal Futures USD 1 Aug-14 Dec-99 1,060 1,166 1.1

Hot-Rolled Coil Steel CFR ASEAN Swap USD 1 Aug-14 Dec-99 800 880 1.1

Hot-Rolled Coil Steel CFR ASEAN Futures USD 1 Aug-14 Dec-99 800 880 1.1
http://www.sgx.com/http://www.sgx.com/wps/portal/sgxweb/home/products/asiaclear/bulk/iron/!ut/p/a1/lY_LCsIwEEW_pV-QiSlTuoym1gRqsDGxZiNZSUCrC_H7reDCtj5nN3DOvVziSUN8G65xHy7x1IbD_fe4m3CeLmAGeVnSOUi7doI7xajBDtg-A9rSDCSltRLVklUq_dPvA4XC33x4cxy--Rvi-8iLBYMMrAXITANHkzOQOALGGwYVDroKq6fGOEdXBXsAH1acj9Y2EGXkSXIDqDvnDw!!/dl5/d5/L0lDU0lKSWdrbUEhIS9JRFJBQUlpQ2dBek15cXchLzRKQ2hEb01kdEJnY2huQVZHRUEhL1o3XzJBQTRIMEMwOU9VMTcwSVVCUTRCVlUxU0g2LzA!/?WCM_PORTLET=PC_Z7_2AA4H0C09OU170IUBQ4BVU1SH6017268_WCM&WCM_GLOBAL_CONTEXT=/wps/wcm/connect/sgx_en/home/products/asiaclear/bulk/iron/resourceshttp://www.sgx.com/http://www.sgx.com/wps/portal/sgxweb/home/products/asiaclear/bulk/iron/!ut/p/a1/lY_LCsIwEEW_pV-QiSlTuoym1gRqsDGxZiNZSUCrC_H7reDCtj5nN3DOvVziSUN8G65xHy7x1IbD_fe4m3CeLmAGeVnSOUi7doI7xajBDtg-A9rSDCSltRLVklUq_dPvA4XC33x4cxy--Rvi-8iLBYMMrAXITANHkzOQOALGGwYVDroKq6fGOEdXBXsAH1acj9Y2EGXkSXIDqDvnDw!!/dl5/d5/L0lDU0lKSWdrbUEhIS9JRFJBQUlpQ2dBek15cXchLzRKQ2hEb01kdEJnY2huQVZHRUEhL1o3XzJBQTRIMEMwOU9VMTcwSVVCUTRCVlUxU0g2LzA!/?WCM_PORTLET=PC_Z7_2AA4H0C09OU170IUBQ4BVU1SH6017268_WCM&WCM_GLOBAL_CONTEXT=/wps/wcm/connect/sgx_en/home/products/asiaclear/bulk/iron/resourceshttp://www.sgx.com/

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Iron Ore Monthly Report (Aug 14)