IO Weekly Technicals Review [2025/02]: Bearish Sentiment SoftensSGX TSI Iron Ore CFR China (62% Fe Fines) Index Futures (“SGX IO Futures”) rose last week, closing USD 0.4/ton higher by 10/Jan (Fri).
SGX IO Futures opened at USD 98.45/ton on 06/Jan (Mon) and closed at USD 98.85/ton on 10/Jan (Fri).
Prices briefly touched a weekly high of USD 99.45/ton on 10/Jan (Fri) and a low of USD 95.9/ton on 07/Jan (Tue). During the week, they traded in a range of USD 3.55/ton, which was narrower than the prior week.
Prices were near the S1 point of USD 96.65/ton throughout the week and closed between the pivot point of USD 99.45/ton and the S1 point of USD 96.65/ton.
Volume peaked on 06/Jan (Mon), as prices were weighed down by slow production of hot metal in China.
Iron Ore Fundamentals in Summary
IO prices pulled back at the start of last week as declining production at Chinese steel mills coincided with rising imports, increasing portside inventories. Production is expected to remain subdued as many mills undergo maintenance ahead of the Chinese New Year.
Nonetheless, IO prices ended the week of 10/Jan moderately higher, supported by China's expanded stimulus measures. Extension of consumer goods trade-in scheme to boost demand has sparked optimism about future iron ore demand.
IO prices remained muted mid-week as China's CPI edged up just 0.1% YoY and stayed flat MoM, highlighting deflationary pressures. China's port IO stockpiles grew by 1.1 million tons (0.8%) WoW to 146.33 million tons for the week ending 10/Jan, according to MMi data .
Rising port inventories and continued RMB depreciation are weighing down on IO prices. With IVs at multi-year lows, market signals limited expectations for significant near-term movement.
Based on seasonality, SGX IO Futures Feb contract trades 24.6% below its last 5-year average (USD 128.93/ton).
Short-Term Moving Averages Indicate Bearish Trend Amid Modest Rebound
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 weeks, highlighting bearish momentum in the market. Prices gained upward momentum late this week.
Long-Term Averages Signal Strengthening of a Bearish Trend
IO price was below the 100-d SMA throughout the week, closing below it as well. This indicates the strengthening of the bearish trend as prices fell below both the long-term moving averages despite a modest rise.
MACD Signals Weakening Bearishness and Potential Reversal, RSI at Neutral Level
The MACD signals an upward reversal starting from 9/Jan. Meanwhile, the RSI is at 44.80, suggesting a positive momentum and it hovers above the midpoint, with its RSI-based moving average at 39.51.
Volatility Near Multi-Year Low, Price Closed Below 23.6% Fibonacci Level
Volatility remained stagnant. Prices hovered between the 23.6% Fibonacci level at USD 100.25/ton and the 0% Fibonacci level throughout the week. Going forward, the 23.6% Fibonacci level will act as resistance while the 0% level at USD 95.8/ton will act as the support.
Selling Pressure Intensified, Price Still Trading at Low Volume Nodes
Selling pressure continues to dominate and grew stronger by the end of the week according to the Accumulation/Distribution (A/D) indicator. The price is trading at a relatively low-volume node. Price closed the week near the midpoint of the Bollinger Band.
IO Price Sways Wildly Before and After Chinese New Year Break
IO prices have generally risen in the lead-up to Chinese New Year, largely due to stockpiling activity by Chinese steel mills ahead of the holiday season. However, post-CNY performance is more varied, potentially influenced by factors like post-holiday demand and inventory levels.
IO Prices Rise Towards CNY & Then Decline Thereafter
Between 2021 and 2024, SGX IO futures prices have risen leading up to the Chinese New Year before tapering off ten trading days after the holiday. Only in 2024 did the price decline before & after CNY holidays. In 2021 & 2022, prices continued to rise even after CNY before falling sharply.
IO Prices Rise Towards CNY & Then Decline Thereafter (2)
Over the last four years, IO futures prices have gained nearly 3% in the ten trading days leading up to CNY. In the 10 days after, IO prices rise another 4.4% over the next 5 trading days before shedding 5% over the next 5 trading days. Interestingly, price moves have been mostly within 1x standard deviation.
IO Futures Only Aggregate Exposure
Financial Institutions (FIIs) are net long with 143.4k lots across all futures and options expiries. Managed Money, Physical market participants, and Others are net short with 106.8k, 20.6k and 16.0k lots respectively across all futures expiries. Managed money increased net short positions last week, while physicals decreased net short positions. Overall futures & options open interest as of 03/ Jan stood at 1,063,467 lots (-19.5% WoW) while it was 1,321,215 lots as of 27/Dec.
Source: SGX
IO Futures & Options Only Aggregate Exposure
Financial Institutions (FIIs) are net long with 137.7k lots across all futures and options expiries. Managed Money, Physical market participants, and Others are net short with 105.9k, 19.2k, and 12.5k lots respectively across all futures and option expiries. Managed money increased net short positions last week, while physicals decreased net short positions. Overall futures & options open interest as of 03/ Jan stood at 1,314,185 lots (-19% WoW) while it was 1,622,836 lots as of 27/Dec.
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 long to net short positions in the last two weeks, 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
IO prices faced pressure from rising imports, a weakened yuan, & weaker domestic steel demand. However, China's stimulus measures & the consumer trade-in scheme aimed at boosting consumption provide support, showing positive signs for recovery. Additionally, technical indicators signal weakening bearishness and a potential reversal. A bullish call spread is a tactical alternative to express this view.
While IVs are at multi-year lows, upcoming macro data from China could drive it higher. This includes the PBoC loan prime rate, housing prices, fixed asset investment, and industrial production. However, the risk of disappointing economic figures from China remains a concern.
Investors might adopt a cautious bullish stance 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 cost than a mere long call. A hypothetical bullish call spread, with a long call at USD 99/ton and a short call at USD 101/ton expiring on 28/Feb, offers a 2x reward-to-risk ratio. The position provides a maximum profit of USD 134/lot, a maximum loss of USD 66/lot, and a breakeven at USD 99.66/ton.
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