After a whirlwind start to the week, the iron ore rally came to an abrupt end on Wednesday, recording one of the largest declines on record.
According to Metal Bulletin, the spot price for benchmark 62% fines fell by $5.61, or 9%, to $58.02 a tonne, erasing more than half the record gain seen on Monday.
It trimmed the year to date gain to 33.2%, and was the largest percentage decline seen since July 8 last year.
Analysts at Metal Bulletin put the sharp reversal down to a steep decline in Chinese steel prices.
“The spot indices have dropped sharply today as buyers take a step back from the market waiting for prices to settle,” said Metal Bulletin in their Wednesday note.
“In the steel market prices also dropped sharply.”
“Chinaâ€™s spot rebar market weakened after major billet producers in Tangshan made a massive price cut. The sharp fall in the price of the semi-finished product, coming right after a rapid surge earlier this week, weighed heavily on the finished steel market. It forced rebar traders to lower their prices several times during the day, which sent both the eastern and northern Chinese markets into disarray.”
Disarray is an appropriate choice of words given the chaotic price swings in the spot iron ore price in the first three days of this week.
A ridiculous $10 surge on Monday, the largest on record, only to be followed up by a near $6 plunge on Wednesday, the largest seen since May 2014.
While there’s still plenty of uncertainty as to what fuelled the pop on Monday, and as to where the near-term price will head next, at present it’s looking more and more like a speculative, flower show induced pop rather than a sustaining, stimulus-driven demand surge.
Iron ore futures were rallying like mad last Friday, well before China’s National People’s Conference got under way in Beijing. This suggests that other factors may driven Monday’s surge besides hopes for fiscal stimulus which were widely circulated earlier in the week.