Iron Ore-Forward swaps jump in thin volumes

Wed Oct 5, 2011

* Spot prices steady as China stays shut for holiday
* Singapore SMX futures rise, volume tops 1 mln T in Sept
By Manolo Serapio Jr

SINGAPORE, Oct 5 (Reuters) - Prices of iron ore forward swaps rose in light volumes as the market looked to another listless session on Wednesday with top iron ore importer China still away for a week-long public holiday.

Swaps cleared by the Singapore Exchange <0#SGXIOS:> climbed on Tuesday with the November contract gaining more than $7 to $155 a tonne, although traders said the thin volumes had exaggerated the price rises.

"There are those trying to see how far they can push the market up when they know that 90 percent of the people are off," said a Singapore-based iron ore derivatives trader.

Most iron ore traders are away this week with China on holiday. China is the biggest buyer of iron ore, the key ingredient to make steel, in the spot market, with most other importers securing cargoes via long-term contracts.

"There's quite a bit of short covering because there's slow business in the market. When that kind of thing happens and markets are thin you get accentuated price moves. I wouldn't read too much into it, though," said another trader in Singapore.

China's closure kept spot iron ore prices steady, with Steel Index's 62-percent grade benchmark .IO62-CNI=SI at $171.30 a tonne and Metal Bulletin's similar gauge .IO62-CNO=MB at $169.01.

In the futures market, Singapore Mercantile Exchange's contracts <0#SMIO:> gained sharply. The most active October contract rose 4 percent to $165.90 a tonne by 0601 GMT, and the November contract jumped more than 7 percent to $163.90.

Total volume traded stood at 230 lots or 23,000 tonnes so far.

SMX, owned by India's Financial Technologies , introduced its cash-settled iron ore futures contract on Aug. 12.

SMX said on Tuesday the volume of iron ore futures contracts traded on the exchange reached 1.1 million tonnes in September, citing active interest from players in physical and financial markets, including traders based in China.

But other traders said the liquidity on the contracts remained small.

"We're certainly looking at it, but we look at the open interest on the November contract and there's 25 lots at the moment, which is tiny, and that's one of the reasons we're not getting involved," said the second Singapore-based trader.

"It seems to me like it's a bit of a retail market."

(sourced Reuters)