Gavin Maguire and Manolo Serapio Singapore
A global glut and collapsing Chinese demand have received most of the blame for the 60 percent slump in iron ore prices over the past year. But one group of traders has also played a key role in pushing prices lower – speculators and fund managers.
Money managers have almost doubled their short positions in iron ore futures and options on the New York Mercantile Exchange (Nymex) since the start of the year, while other large speculators have increased their short bets by 150 percent, data from the Commodity Futures Trading Commission shows.
The net effect has been a more than 170 percent jump in total Nymex iron ore futures open interest, just as prices fell more than a third to less than $50 (R588) per ton.
“Everybody’s bearish and they’re playing on the bearish sentiment to go short, and a lot of companies who can’t trade physicals go into paper,” an iron ore trader in Singapore said. “Everyone’s trying to make money out of it. Nobody will go long in the current market.”
This aggressive short-sided bias to trader behaviour on Nymex seems to affirm the bearish sentiment prevailing in the Asian steel sector and cash iron ore market. It’s unlikely market sentiment will reverse soon with big, low-cost suppliers Vale, Rio Tinto and BHP Billiton bound to ship more cargoes to China.
Still, the large speculator short exposure also reveals the potential for a short-covering rally once market sentiment improves. – Reuters