The iron ore market made history on Monday, recording its largest one-day increase on record.
According to Metal Bulletin, the spot price for benchmark 62% fines rose by $9.99, or 18.6% to $63.74 a tonne, the highest level seen since June 15 last year.
Whether in percentage or dollar terms, it was the largest increase ever recorded going back to when spot pricing was first introduced in mid-2008. From the all time low of $38.30 a tonne struck on December 11 last year, the benchmark price has now risen by 66.4%.
The chart below tells the story. It’s amazing, and literally unprecedented.
According to Metal Bulletin, not only was the price gain the largest ever seen, it was built on incredibly strong volumes.
While there have been a raft of theories bandied about to explain the recent surge, perhaps it could be as simple as Chinese steel mills bringing forward production ahead of an enforced shut down that could last for several months.
According to a report from Reuters, Tangshan, a major steel producing city in the northern province of Hebei, is scheduled to host an international horticultural exposition between April 29 through to October 16 this year, with authorities keen to ensure bright blue skies greet those who will be in attendance.
“During the period, authorities are expected to order steel mills in the region to slash production to reduce air pollution, and producers are expected to increase output ahead of the event,” said Reuters.
According to analysts at Metal Bulletin, the Tangshan Iron & Steel Association stated the region’s crude steel output would be halved for part of the exposition.
If true, it would not be the first time an event of cultural significance, and the need for clear skies, has had a major impact on the iron ore price.
Between July 8 to August 13 last year the spot price for benchmark 62% fines rocketed by more than 32% as Chinese mills brought forward production before a major military parade on September 3.
The government ordered many mills around Beijing to halt or limit production for several week’s to ensure clear skies for the event.
While the government succeeded in its quest, delivering the brightest of bright blue skies, the impact on the iron ore price was stark.
As fundamentals in China’s steel market kicked back in the price of iron ore was hammered, dropping 35% from September 10 to an all time record low of $38.30 a tonne on December 11.
The question many will now have to ask themselves is whether this time is different, or merely a precursor to another savage plunge ahead.
The scenario is eerily similar to that seen last year, with severe supply-demand imbalances that lead to the sharp decline still firmly in place.