The Singapore Exchange is increasingly taking on a bigger share of coking coal futures volume, latest trade data showed Tuesday.
The SGX's FOB Australia Premium Coking Coal Futures contract made up 285,000 mt in trade November, up from 156,000 mt in October and none a year earlier, when the SGX saw HCC derivatives trade center on a CFR China basis. A further 5,000 mt traded on SGX's equivalent FOB Australia swap contract last month.
Volumes surpassed coking coal contracts on the Chicago Mercantile Exchange for a second straight month.
SGX's open interest in the coking coal futures rose to 3,050 lots, or 305,000 mt, from 1,210 lots at the end of October and 370 lots at end-September, as steady trading interest built up.
The SGX said October and November volumes in aggregate were more than five times greater than total volume cleared in the previous nine months, while SGX's market share in the international coking coal derivatives market, excluding China's, rose to 79%, up from around a 66% share in October.
"This trend is fully in line with the underlying physical market as indexation centralizes around the TSI FOB Australia premium hard coking coal price," the bourse said in a statement.
The TSI FOB Australia premium hard coking coal averaged at $75.12/mt in November, down from $79.51/mt for October.
Open interest, an indicator of overall market trading activity, on the Australian low-vol coking coal contract on the CME fell to 567,000 mt as of Friday, down from 572,000 mt a week earlier.
The SGX contract settles on indices published by The Steel Index, which is a specialist pricing unit owned by Platts.
The Platts Asia-Pacific and US metallurgical coal price assessments have been long used to help settle various physical trade transactions. The Australia premium low-vol price forms the basis of the CME futures contract, which has seen overall larger liquidity over time and open interest still remains higher than for the SGX contracts.
SGX participants are mainly using the TSI contracts to hedge exposure to physical price risk in coking coal trade, as the FOB Australia contract grows as a benchmark independent of basis risk with CFR China trade, said Jarek Mlodziejewski, manager of TSI's ferrous derivatives market engagement.
"We are seeing a broader acceptance of TSI as a tool to use as the market is shifting from a China centric coking coal model, as their imports continue to diminish, to the broader market looking at outright FOB as a reference," Mlodziejewski said.
November's growth in TSI-based FOB Australia trade shows the index is "further establishing itself as leading reference price for physical coking coal sales on a FOB Australia basis," Mlodziejewski added.
Several participants are using TSI, as well as Platts FOB Australia indices, as part of sales and offtake arrangements.
Some speculators are now joining the physical market participants in the derivatives market to add to liquidity, TSI added.
The SGX said it offers margin offsets for opposite positions between coking coal and iron ore, thermal coal, fuel oil and dry bulk freight products.
