The Singapore Exchange (SGX) said it cleared another 150,000 mt coking coal options trade this week, adding to inaugural options business last week in the expanding coking coal derivatives market.
SGX said 50,000/month mt for Q1, 2018 which traded Monday was cleared Wednesday. The call options have a $230/mt strike, and priced at a $2.70/mt premium, the SGX said.
Last week, options activity in the commodity started with Q1, 2018 call options at a $195/mt strike for 10,000 mt/month at a $7.60/mt premium trading November 10 through interdealer brokers SSY Futures.
This was cleared by SGX on November 13. A further 50,000 mt/month of Q1, 2018 call options traded on November 13, with strikes at $195/mt and a premium of $7.60/mt, and put up for clearing on the Singapore bourse on November 14.
SSY Futures have been involved in broking all the options cleared to date. Other brokerages are said to be also looking at it, and market makers active in iron ore derivatives are said to be offering pricing in coking coal options too, with interest said to include cal-2018.
This options trade builds on increased price volatility in the commodity and interrelated markets of iron ore and steel, and hedging interest via futures contracts.
The SGX traded 12.8 million mt in coking coal futures and swaps over January-October, more than double the combined volume of swaps traded on both the SGX and Chicago Mercantile Exchange in 2016. November is shaping up to be a strong month, with daily volume picking up as spot prices increased on shipment disruption in Australia.
The SGX launched options in coking coal in September, with CME Group offering coking coal options in October.
SGX coking coal swaps and options contracts are settled against TSI's Australian Premium Hard Coking Coal FOB index, a specialist pricing unit under S&P Global Platts. The CME's options also settle basis TSI PHCC FOB Australia.
Platts Premium Low Vol HCC assessment rose to $201/mt FOB Australia on Wednesday, up 12% from $179/mt FOB at the start of the month. A physical coal buyer expected Q1 to remain tight as demand outside China is seasonally strong, with high steel margins aiding coke consumption to boost steel output.
The SGX coking coal options are Asian style, with average price settlement for the month. The final settlement price for a call option is the underlying average price minus the strike price, multiplied by the contract size, while for a put option it is the strike price minus the underlying average price, multiplied by the contract size.
Activity in call options to date suggests interest in options to protect from further upside in coking coal spot prices.
