[ferro-alloys.com]The Singapore Exchange reported a total volume of 147 million mt iron ore swaps traded in June, up 9.7% month on month, recording the highest monthly trading volume since March 2017.

The USD-denominated July swap contract traded on SGX went up 17.2% to $112.87/mt at the end of June from $96.28/mt at the end of May. Similarly, onshore iron ore futures traded on the Dalian Commodity Exchange gained 15.3% to Yuan 838.5/mt from Yuan 727/mt.

The increase in trading volume in SGX swaps is pointing to better market liquidity and a directional-driven positioning.

As for Yuan-denominated contracts on DCE, the trading volume registered 6.7% decline month on month.

The increasing trading volume on SGX is caused by a confluence of bullish fundamental factors with steel mills exerting a consistent, sizeable procurement pull for raw materials and supply-side issues over June.

Against this backdrop, the backwardation of term structure of derivatives steepened. For instance, The M1M2 swaps spread toward end of June rallied 141.5% month on month to $4.95/mt from $2.05/mt. This confirmed strong demand in iron ore and short-term supply tightness, bringing about some pressing supply concerns in the market.

Deeper backwardation was observed in DCE, too. Petter Kolderup, Regional Manager of Metals Derivatives at S&P Global Platts, said the backwardation is typical of "traders bull-spreading the curve due to a upward momentum, making the curve going into steeper backwardation."

Realized volatility was also on the rise over the month of June. In May, the spot 30-day volatility was in sub-25% levels and this is compared to the close-to-35% levels of June, S&P Global Platts data shows. Notwithstanding, the trading volume of Options on Swaps actually dropped by a substantial 17.9%.

The open interest, however, was largely stable. Consistent open interest and falling transaction volume implied some sort of "buy-and-hold" behavior. A Chinese trader in Singapore explained that while options volumes should increase in a volatile market, there were not many buyers of iron ore options in June as the "protection' afforded by options was way too expensive.

In addition, the trader said there were few natural sellers of volatility, either, resulting in poorer liquidity and trading volume.

(S&P Global Platts)

• [Editor:王可]