China’s commodities market went ballistic on Tuesday, seemingly out of nowhere.
The spot price for benchmark 62% iron ore fines ripped 6.65% higher to $59.38 a tonne, according to Metal Bulletin, the largest one-day percentage increase since April 21. So far this year the price has surged 36.3%.
“Key market news today related to the update on capacity cuts in Tangshan,” said analysts at Metal Bulletin.
“Tangshan’s local government on Monday afternoon clarified that sinter plants and re-rollers in the city that meet environmental protection requirement can continue operating normally over July 12-24, but must halt production over July 25-31.”
China’s establishment was awaiting a ruling from The Hague’s Permanent Court of Arbitration on China’s territorial claims over parts of the South China Sea. After the close of the Asian trading session, The Hague threw out China’s claim.
Earlier, iron ore and coking coal futures on the Dalian Commodity Exchange both rose by 6%, the maximum daily limit allowed.
Rebar futures traded separately on the Shanghai Futures Exchange came close to being “limit up”, closing the session with a gain of only 5.62%.
Before the start of trade, there was no indication gains of such magnitude were coming.
Some pinned the excessive gains down to a government-imposed cut to industrial production levels in Tangshan, a key steel-producing hub. However, this was known on Monday, and there was no rally in futures then.
Other reasons that we saw float by included hopes for more stimulus before a raft of important Chinese economic figures later in the week — including Q2 GDP — along with optimism that the government will continue pushing ahead with reforms to the nation’s industrial and commodity sectors.
Geopolitical risks around The Hague’s ruling were also cited.
Whatever the true catalyst, presuming that there is one, it looks like the epic gains of Tuesday will continue with gusto today.
The most actively traded September 2016 future on the Dalian Commodities Exchange rose by a further 3.75% in overnight trade, mirroring similar moves in coking coal and rebar futures over the same period.
Trade in Chinese futures will resume at 11am AEST, just before the release of Chinese international trade figures for June that will arrive sometime after Midday AEST.