IO Weekly Technicals Review [2025/01]: IO Poised for Recovery
SGX TSI Iron Ore CFR China (62% Fe Fines) Index Futures (“SGX IO Futures”) fell last week, closing USD 0.35/ton lower by 03/Jan (Fri).
SGX IO Futures opened at USD 99.1/ton on 30/Dec (Mon) and closed at USD 98.75/ton on 03/Jan (Fri).
Prices briefly touched a weekly high of USD 102.25/ton on 01/Jan (Wed) and a low of USD 97.9/ton on 03/Jan (Fri). It traded in a range of USD 4.35/ton during the week, which was wider than the prior week.
Prices tested the weekly R1 point of USD 101.1/ton throughout the week and closed between the pivot point of USD 99.85 and the S1 point of USD 97.65/ton.
Volume spiked on 03/Jan (Fri), as iron ore prices reached their lowest level since 19/Nov.
Iron Ore Fundamentals in Summary
Iron ore prices declined for the week ending 03/Jan, amid signs of rising inventories and weakening demand in China.
Disappointing economic data from China further weighed on demand outlooks. China’s manufacturing PMI declined to 50.1 in December, down from 50.3 in November, and missed analyst expectations of 50.3.
The daily average port pick-up volume of imported ore decreased by 47k tons WoW to 3.08 million tons.
China's port iron ore stockpiles grew by 240k tons (0.2%) WoW to 145.22 million tons in the week ending 03/Jan, according to SMM data.
Based on seasonality, SGX IO Futures Jan contract trades 23.8% below its last 5-year average (USD 128.93/ton).
Short-Term Moving Averages Indicate Strengthening Bearish Trend
Following the formation of a death cross on 20/ Dec (Fri), the gap between the 9-day and 21-day moving averages widened over the subsequent week, highlighting bearish momentum in the market. Further declines are possible if support levels are breached.
Long-Term Averages Signal Persistent Bearish Trend
IO prices tested the 100-d SMA throughout the week, closing below the 100-d SMA by the end of the week. This indicates the strengthening of the bearish trend as prices fell below both the long-term moving averages.
MACD Points to Deepening Bearish Momentum, RSI at Neutral level
The MACD indicates a stronger bearish sentiment starting from 18/Dec and persisting through the current week. Meanwhile, the RSI is at 39.33, suggesting a neutral stance and it hovers slightly below the midpoint, with its RSI-based moving average at 42.39.
Volatility Spiked; Price Closed Below 23.6% Fibonacci Level
Volatility spiked on 03/Jan (Fri) to end the week higher. Prices hovered over the 23.6% Fibonacci level at USD 100.59/ton throughout the week but declined sharply to close below the 23.6% Fibonacci level. Going forward, the 23.6% Fibonacci level will act as resistance while the 0% level at USD 96.09/ton will act as the support.
Selling Pressure Strengthened, Price Closed at Low Volume Nodes
According to the Accumulation/Distribution (A/D) indicator, selling pressure continued to dominate and grew stronger by the end of the week. The price closed the week at a relatively low-volume node and along the lower Bollinger Band.
IO Futures Only Aggregate Exposure
Financial Institutions (FIIs) are net long with 136.2k lots across all futures expiries. Managed Money, Physical market participants and Others are net short with 26.4k, 79.2k and 30.6k lots respectively across all futures expires. Overall futures open interest as of 03/ Jan stood at 1,321,215 lots.
Source: SGX
IO Futures & Options Only Aggregate Exposure
Financial Institutions (FIIs) are net long with 130.6k lots across all futures and options expiries. Managed Money, Physical market participants and Others are net short with 19.6k, 82.1k and 28.9k lots respectively across all futures and option expires. Overall futures & options open interest as of 03/ Jan stood at 1,622,836 lots.
Source: SGX
Historical Futures Aggregate Exposure by Market Participants
Physical participants have switched from net long to net short over the last quarter. Managed Money transitioned from net short to net long positions, despite ending December with a reported net short, signaling a notable shift in market sentiment. Financial Institutions continue to hold net long positions since the second quarter of this year.
Source: SGX
Hypothetical Trade Setup
Iron ore prices face downward pressure due to increasing inventories and subdued demand, primarily driven by weakness in China's steel industry. Technical indicators signal continued bearishness, with prices failing to breach resistance levels and trading below short and long-term moving averages. However, before the Chinese New Year, seasonal stockpiling by steel mills after 01/Jan is expected to provide some support to spot prices.
A long futures position carries downside risk if next week’s CPI and PPI data disappoint. Alternatively, investors can express a bullish view through a bullish call spread using SGX IO options. This involves buying a lower-strike call and selling a higher-strike call, providing capped upside and downside at a lower premium cost than a long call. A hypothetical bullish call spread, with a long call at USD 100/ton and a short call at USD 102/ton expiring on 28/Feb, offers a 1.86x reward-to-risk ratio. The position provides a maximum profit of USD 130/lot, a maximum loss of USD 70/lot, and a breakeven at USD 100.7/ton.
DISCLAIMER
This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services.
Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
SGX IO Futures opened at USD 99.1/ton on 30/Dec (Mon) and closed at USD 98.75/ton on 03/Jan (Fri).
Prices briefly touched a weekly high of USD 102.25/ton on 01/Jan (Wed) and a low of USD 97.9/ton on 03/Jan (Fri). It traded in a range of USD 4.35/ton during the week, which was wider than the prior week.
Prices tested the weekly R1 point of USD 101.1/ton throughout the week and closed between the pivot point of USD 99.85 and the S1 point of USD 97.65/ton.
Volume spiked on 03/Jan (Fri), as iron ore prices reached their lowest level since 19/Nov.
Iron Ore Fundamentals in Summary
Iron ore prices declined for the week ending 03/Jan, amid signs of rising inventories and weakening demand in China.
Disappointing economic data from China further weighed on demand outlooks. China’s manufacturing PMI declined to 50.1 in December, down from 50.3 in November, and missed analyst expectations of 50.3.
The daily average port pick-up volume of imported ore decreased by 47k tons WoW to 3.08 million tons.
China's port iron ore stockpiles grew by 240k tons (0.2%) WoW to 145.22 million tons in the week ending 03/Jan, according to SMM data.
Based on seasonality, SGX IO Futures Jan contract trades 23.8% below its last 5-year average (USD 128.93/ton).
Short-Term Moving Averages Indicate Strengthening Bearish Trend
Following the formation of a death cross on 20/ Dec (Fri), the gap between the 9-day and 21-day moving averages widened over the subsequent week, highlighting bearish momentum in the market. Further declines are possible if support levels are breached.
Long-Term Averages Signal Persistent Bearish Trend
IO prices tested the 100-d SMA throughout the week, closing below the 100-d SMA by the end of the week. This indicates the strengthening of the bearish trend as prices fell below both the long-term moving averages.
MACD Points to Deepening Bearish Momentum, RSI at Neutral level
The MACD indicates a stronger bearish sentiment starting from 18/Dec and persisting through the current week. Meanwhile, the RSI is at 39.33, suggesting a neutral stance and it hovers slightly below the midpoint, with its RSI-based moving average at 42.39.
Volatility Spiked; Price Closed Below 23.6% Fibonacci Level
Volatility spiked on 03/Jan (Fri) to end the week higher. Prices hovered over the 23.6% Fibonacci level at USD 100.59/ton throughout the week but declined sharply to close below the 23.6% Fibonacci level. Going forward, the 23.6% Fibonacci level will act as resistance while the 0% level at USD 96.09/ton will act as the support.
Selling Pressure Strengthened, Price Closed at Low Volume Nodes
According to the Accumulation/Distribution (A/D) indicator, selling pressure continued to dominate and grew stronger by the end of the week. The price closed the week at a relatively low-volume node and along the lower Bollinger Band.
IO Futures Only Aggregate Exposure
Financial Institutions (FIIs) are net long with 136.2k lots across all futures expiries. Managed Money, Physical market participants and Others are net short with 26.4k, 79.2k and 30.6k lots respectively across all futures expires. Overall futures open interest as of 03/ Jan stood at 1,321,215 lots.
Source: SGX
IO Futures & Options Only Aggregate Exposure
Financial Institutions (FIIs) are net long with 130.6k lots across all futures and options expiries. Managed Money, Physical market participants and Others are net short with 19.6k, 82.1k and 28.9k lots respectively across all futures and option expires. Overall futures & options open interest as of 03/ Jan stood at 1,622,836 lots.
Source: SGX
Historical Futures Aggregate Exposure by Market Participants
Physical participants have switched from net long to net short over the last quarter. Managed Money transitioned from net short to net long positions, despite ending December with a reported net short, signaling a notable shift in market sentiment. Financial Institutions continue to hold net long positions since the second quarter of this year.
Source: SGX
Hypothetical Trade Setup
Iron ore prices face downward pressure due to increasing inventories and subdued demand, primarily driven by weakness in China's steel industry. Technical indicators signal continued bearishness, with prices failing to breach resistance levels and trading below short and long-term moving averages. However, before the Chinese New Year, seasonal stockpiling by steel mills after 01/Jan is expected to provide some support to spot prices.
A long futures position carries downside risk if next week’s CPI and PPI data disappoint. Alternatively, investors can express a bullish view through a bullish call spread using SGX IO options. This involves buying a lower-strike call and selling a higher-strike call, providing capped upside and downside at a lower premium cost than a long call. A hypothetical bullish call spread, with a long call at USD 100/ton and a short call at USD 102/ton expiring on 28/Feb, offers a 1.86x reward-to-risk ratio. The position provides a maximum profit of USD 130/lot, a maximum loss of USD 70/lot, and a breakeven at USD 100.7/ton.
DISCLAIMER
This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services.
Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
Disclaimer
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