Commodities

Christopher Langner is a markets columnist for Bloomberg Gadfly. He previously covered corporate finance for Bloomberg News, and has written for Reuters/IFR, Forbes, the Wall Street Journal and Mergermarket.

David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

As the authorities try to control the frenzied trading that has taken over the Dalian Commodity Exchange, another marketplace almost 3,000 miles away is reaping the profits. While speculative trading engulfed Chinese iron-ore contracts, monthly open interest in Singapore futures jumped to a record at the end of March. The Southeast Asian hub has never seen so much trading in the first four months of a year.

Tagging Along
Open interest in iron ore futures in Singapore hit a record at the end of March
Source: Bloomberg; SGX
* Monthly data

Average daily open interest in Singapore year-to-date was 98,510 futures contracts, more than double the same period last year. Trading volume, meanwhile, increased almost 12 times to an average of 654 a day, from 56. 

It's Catching
The average daily number of iron ore contracts traded in Singapore has multiplied by 12 this year
Sources: Bloomberg; SGX
* Average refers to periods from Jan. 1 to May 6 in respective years.

That's great news for Singapore Exchange, which had already attributed a 24 percent increase in volumes in the first quarter in part to more iron-ore trading. In fact, according to the exchange's first-quarter report, that contract was by far the biggest star. 

SGX Likes Dalian
Iron ore, the same futures contract that has seen frenzied trading in China, had the greatest volume increase in Singapore in the first quarter
Source: Company filings

And while a crackdown on excessive trading and speculation in China is likely to reduce volumes there, it's unclear whether it will have the same damping effect in Singapore. It may even increase interest. The city-state's exchange is much more focused on institutional players, whereas Dalian has a large retail participation, which helps explain why trading has increased so much in China.

Singapore also is already a major center for metals trading: Rio Tinto and BHP Billiton, the second- and third-biggest producers of iron ore, have clashed with the Australian Taxation Office over Singapore-based marketing hubs that Australia's government argues are being used to minimize tax.

That said, the country still has a way to go before exchange-traded iron ore becomes a truly significant business. With a contract size of 500 metric tons, current iron ore swaps open interest of 40,321 contracts represents about 20 million tons, or $1.17 billion-worth of ore at current prices. By comparison, there are 22,459 open contracts on the London Metal Exchange's least-traded major metal , tin, equivalent to about 112,295 tons of metal or $1.95 billion. In aluminum, there are 965,729 contracts, representing 24 million tons or $38.8 billion.

Increased intervention and curbs from Chinese authorities trying to reduce speculation in commodities are likely to drive companies and traders in the iron ore market to a more predictable and stable forum. In Asia, the obvious candidate is Singapore.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

(Makes clear in first and second paragraphs that the Singapore contracts referred to are futures contracts.)

  1. We're counting the six most-traded metals that comprise the LMEX index: aluminum, copper, zinc, nickel, lead, and tin.

To contact the authors of this story:
Christopher Langner in Singapore at clangner@bloomberg.net
David Fickling in Sydney at dfickling@bloomberg.net

To contact the editor responsible for this story:
Paul Sillitoe at psillitoe@bloomberg.net