The Singapore Exchange saw record trade cleared on its iron ore Lump Premium contract in August when 24,450 lots, or 2.445 million mt of derivatives contracts, settled against the Platts spot lump premium assessment (IOCLP00).
This represents a more than fourfold surge in growth from July's traded volumes of 580,500 mt. June's volumes amounted to 610,000 mt, the previous record for traded volumes.
This peak in derivatives trade volumes coincides with an all-time record high for the lump premium itself which reached $0.3260/dry metric ton unit August 31, up $0.1195/dmtu from the start of the month. The previous high was $0.3250/dmtu January 21, 2015.
Market participants pointed to this upward trend in the lump premium over the month of August as one factor behind the increased trading interest.
"Market conditions are currently bullish towards lump, and correspondingly with this view I've increased my paper position," said a Chinese trader source.
Government-imposed sintering cuts have pushed mills to increase procurement of lump as a substitute feedstock to maintain their steel output, in an environment of healthy profits, leading to tighter supply at ports as well as firmer seaborne demand.
The spread between Pilbara Blend fines and lump at Rizhao was heard at around Yuan 200/wmt Monday, or the equivalent of $0.37/dmtu premium on an import parity basis.
Traders in part also attributed the record volumes to the increased frequency of the Platts iron ore spot lump premium assessment from a weekly to a daily basis.
"With a daily assessment, this increases the usefulness of the contract for hedging purposes compared to a weekly price," said an International trader source.
"Premiums are now more representative of current market conditions and this naturally encourages more trade in the contract," said a Chinese trader source.
Although trade was concentrated in the prompter month strips of September and October, burgeoning open interest in later contract months was also evident.
Open interest for the November and December strips grew to 2,350 lots and 2,100 lots respectively on August 31 compared with zero the previous month.
Prominent backwardation in the lump premium curve was also observed, with the September contract settling at $0.2950/dmtu compared with $0.2650/dmtu for the December contract.
This is in line with the stronger demand heard for prompter cargoes given the current pressing need of mills to meet environmental controls.
