IO Weekly Technicals Review [2024/46]: IO to Rise on Seasonality
SGX TSI Iron Ore CFR China (62% Fe Fines) Index Futures (“SGX IO Futures”) plunged last week, closing USD 5.49/ton lower by 15/Nov (Fri). Iron ore prices faced their steepest weekly drop since September.
SGX IO Futures opened at USD 102.20/ton on 11/Nov (Mon) and closed at USD 96.71/ton on 15/Nov (Fri).
Prices briefly touched a weekly high of USD 103.46/ton on 11/Nov (Mon) and a low of USD 96.30/ton on 15/Nov (Fri). It traded in a range of USD 7.16/ton during the week, which was bigger than the prior week.
Prices traded below the pivot point of USD 103.25/ton for the entire week and closed below the S2 point of USD 98.05/ton.
Volume peaked on 15/Nov (Fri) as Iron Ore prices declined due to a fall in China’s housing prices and industrial production.
Iron Ore Fundamentals in Summary
China's steel output rose in October, driven by increased orders following Beijing's economic package, while exports hit a near-decade high.
Despite this, long-term prospects remain weak, with China projected to account for less than half of global steel consumption in 2024 for the first time in six years, according to the World Steel Association.
China's housing prices fell 5.9% YoY in Oct, deepening from a 5.8% drop in Sep. Industrial production grew 5.3% YoY, missing analyst expectations of 5.5% and slightly below the 5.4% growth in Sep.
Chinese portside inventories grew by 120k tons WoW to 148.51M tons last week. The average daily port discharge volume grew by 131k tons WoW to 3.18M tons.
Based on seasonality, SGX IO Futures Dec contract trades 3.7% below its last 5-year average (USD 103.92/ton).
Short-Term Moving Averages Indicate Bearish Trend
The 9-day moving average crossed below the 21-day on 14/Nov (Thu), forming a death cross. This signal, coupled with price declines on 14/Nov (Thu) and 15/Nov (Fri), indicated a potential bearish trend.
Long-Term Averages Signal Persistent Bearish Trend
The price closed below the 100-day moving average (DMA) on 11/Nov (Mon) and stayed below it all week, trading beneath both the 100 and 200 DMAs. This contrasts with the previous week, where it fluctuated between the two.
MACD Points to Continued Bearishness, RSI Remains Neutral
MACD signaled a bearish trend at the end of the week. RSI is slightly lower than the mid-point level at 44.65 signaling a neutral trend. The RSI has remained below the RSI-based MA since 07/Nov (Thu).
Volatility Remains Moderate, Price Tests the Fibonacci 23.6% Level
Volatility gradually edged up throughout the week, while remaining moderate. The 23.6% Fibonacci level was tested last week and managed to hold resistance on the level. With the downtrend from 15/Nov (Fri) reversing on 18/Nov (Mon), the new resistance level can be expected at USD 100.75/ton (23.6% retracement) and support at USD 96.3/ton.
Selling Pressure Intensified, Price Trading at Low Volume Nodes
Selling pressure grew stronger last week based on the Accumulation/Distribution indicator (A/D). Price trades at a low-volume node which was dominated by sell volume, which could act as a resistance or support this week. The price closed below its lower Bollinger band on 15/Nov (Fri).
Iron Ore Prices Poised to Rise Ahead of Lunar New Year
Iron ore prices typically rise in November and December as seasonal trends drive restocking ahead of China's Lunar New Year, fueled by increased demand for steel production.
Hypothetical Trade Setup
As noted earlier, iron ore prices typically increase ahead of the Lunar New Year due to heightened restocking driven by stronger demand, with the Lunar New Year set for 29/Jan/2025.
To capitalize on this seasonal trend, we propose a hypothetical trade setup of buying SGX IO January Futures Contract at USD 99/ton with a stop at USD 94/ton and target at USD 106.5/ton resulting in a reward-to-risk ratio of 1.50x. This calculation excludes transaction costs comprising clearing broker fees and exchange clearing fees.
DISCLAIMER
This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services.
Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
SGX IO Futures opened at USD 102.20/ton on 11/Nov (Mon) and closed at USD 96.71/ton on 15/Nov (Fri).
Prices briefly touched a weekly high of USD 103.46/ton on 11/Nov (Mon) and a low of USD 96.30/ton on 15/Nov (Fri). It traded in a range of USD 7.16/ton during the week, which was bigger than the prior week.
Prices traded below the pivot point of USD 103.25/ton for the entire week and closed below the S2 point of USD 98.05/ton.
Volume peaked on 15/Nov (Fri) as Iron Ore prices declined due to a fall in China’s housing prices and industrial production.
Iron Ore Fundamentals in Summary
China's steel output rose in October, driven by increased orders following Beijing's economic package, while exports hit a near-decade high.
Despite this, long-term prospects remain weak, with China projected to account for less than half of global steel consumption in 2024 for the first time in six years, according to the World Steel Association.
China's housing prices fell 5.9% YoY in Oct, deepening from a 5.8% drop in Sep. Industrial production grew 5.3% YoY, missing analyst expectations of 5.5% and slightly below the 5.4% growth in Sep.
Chinese portside inventories grew by 120k tons WoW to 148.51M tons last week. The average daily port discharge volume grew by 131k tons WoW to 3.18M tons.
Based on seasonality, SGX IO Futures Dec contract trades 3.7% below its last 5-year average (USD 103.92/ton).
Short-Term Moving Averages Indicate Bearish Trend
The 9-day moving average crossed below the 21-day on 14/Nov (Thu), forming a death cross. This signal, coupled with price declines on 14/Nov (Thu) and 15/Nov (Fri), indicated a potential bearish trend.
Long-Term Averages Signal Persistent Bearish Trend
The price closed below the 100-day moving average (DMA) on 11/Nov (Mon) and stayed below it all week, trading beneath both the 100 and 200 DMAs. This contrasts with the previous week, where it fluctuated between the two.
MACD Points to Continued Bearishness, RSI Remains Neutral
MACD signaled a bearish trend at the end of the week. RSI is slightly lower than the mid-point level at 44.65 signaling a neutral trend. The RSI has remained below the RSI-based MA since 07/Nov (Thu).
Volatility Remains Moderate, Price Tests the Fibonacci 23.6% Level
Volatility gradually edged up throughout the week, while remaining moderate. The 23.6% Fibonacci level was tested last week and managed to hold resistance on the level. With the downtrend from 15/Nov (Fri) reversing on 18/Nov (Mon), the new resistance level can be expected at USD 100.75/ton (23.6% retracement) and support at USD 96.3/ton.
Selling Pressure Intensified, Price Trading at Low Volume Nodes
Selling pressure grew stronger last week based on the Accumulation/Distribution indicator (A/D). Price trades at a low-volume node which was dominated by sell volume, which could act as a resistance or support this week. The price closed below its lower Bollinger band on 15/Nov (Fri).
Iron Ore Prices Poised to Rise Ahead of Lunar New Year
Iron ore prices typically rise in November and December as seasonal trends drive restocking ahead of China's Lunar New Year, fueled by increased demand for steel production.
Hypothetical Trade Setup
As noted earlier, iron ore prices typically increase ahead of the Lunar New Year due to heightened restocking driven by stronger demand, with the Lunar New Year set for 29/Jan/2025.
To capitalize on this seasonal trend, we propose a hypothetical trade setup of buying SGX IO January Futures Contract at USD 99/ton with a stop at USD 94/ton and target at USD 106.5/ton resulting in a reward-to-risk ratio of 1.50x. This calculation excludes transaction costs comprising clearing broker fees and exchange clearing fees.
DISCLAIMER
This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services.
Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
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