Iron Ore Volumes in Dalian Jump to Record Amid Market Swings


Iron ore trading on China’s Dalian Commodity Exchange surged to a record last month as prices rallied and some investors who’d bet against the market were caught out, boosting futures volumes of the raw material in the world’s largest buyer.

Volumes soared to 76.2 million contracts, or 7.6 billion metric tons, surpassing the previous high of 32.6 million contracts that was set in December, according to bourse data. Compared with March 2015, the volumes last month increased 661 percent. The contracts began to trade in 2013.

Some industry leaders including Australia’s Fortescue Metals Group Ltd. and Cliffs Natural Resources Inc., the top U.S. producer, have said that derivatives markets in Asia are playing an increasingly important role in shaping swings in benchmark prices. Last month, spot prices posted their biggest one-day rally after Chinese leaders talked up their commitment to sustaining growth before retracing gains. Iron ore has risen this year, contrary to expectations from some banks for further losses amid a global glut.

Speculative Trading

The surge in prices and trading volumes in Dalian was sparked by short-covering and eventually a so-called short squeeze, according to Xiao Fu, a commodities strategist at Bank of China International in London, describing a situation in which investors who’d bet against a price are suddenly forced to reverse wagers as prices jump. The rapid, upward movement in prices had also attracted speculative trading, Fu said in an e-mail.

Ore with 62 percent content in Qingdao ended March 8.3 percent higher at $53.75 a dry ton to cap the biggest quarterly gain since 2012, according to Metal Bulletin Ltd. On March 7, the raw material surged 19 percent, then fell 8.8 percent two days later. In Dalian, futures swung between a low of 377.5 yuan a ton on March 1 and a high of 449.5 yuan mid-month as sentiment ebbed and flowed. It ended at 386.5 yuan on Friday after rising 1.7 percent.

“You get universal pessimism and then you get a switch to kind-of universal optimism, that’s why you get such violent moves,” Ian Roper, a Singapore-based director at Macquarie Group Ltd.’s commodities research division, said by phone. “The whole commodities space is going to be much more driven by these mini-cycles.”

Dalian’s futures for iron ore, which are restricted to citizens and companies registered on the mainland, are among derivatives tracking the commodity, with Singapore Exchange Ltd., CME Group Inc. and IntercontinentalExchange Inc. also offering products. Three calls to the Dalian bourse’s spokesman Wang Weijun for a comment were unanswered.

As iron ore is heavily traded in the futures markets, it will be driven by any positive or negative news flow, Fortescue Chief Executive Officer Nev Power told Bloomberg Television last month. The benchmark price is being controlled by the futures market and by speculation on the Dalian exchange, according to Lourenco Goncalves, chief executive officer of Cleveland-based Cliffs Natural.

Source: Bloomberg

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