Chinese iron ore futures plunged overnight


Iron ore spot markets rebounded strongly on Thursday, mirroring renewed strength in Chinese steel prices.

But with Dalian futures down heavily overnight, it looks like that gain may be reversed, and then some, on Friday.

According to Metal Bulletin, the spot price for benchmark 62% fines rose by 1.2% to $92.36 a tonne, existentially reversing the decline seen during the previous two sessions.

Both higher and lower grade ores also increased during the session, albeit by a smaller margin.

The gains coincided with renewed strength in rebar prices that were supported by the twin factors of increased demand and production curbs as a result of environmental restrictions.

“Rebar is the safest commodity futures for now as rebar supplies have been hit hard by the government’s environmental crackdown, and now demand is increasing,” Li Wenjing, an analyst with Industrial Futures in Shanghai, told Reuters.

Underpinned by higher steel prices, the benchmark iron ore spot price has now risen 17.1% in 2017, extending its gain from the all-time low of $38.30 a tonne struck in mid-December 2015 to 141%.

It now sits less than 3% below the multi-year high of $94.86 a tonne of February 21 this year.

Given the scale of the gains over the past year, there’s now reports that it’s tempting higher-cost, lower-grade Chinese iron ore mines to restart production given ballooning margins.

“Quite a few Chinese iron ore miners are planning to come back and reopen their mines,” Pan Guocheng, head of medium-sized miner China Hanking Holdings, told Reuters.

Over a third of China’s annual iron ore production capacity has been taken offline since 2013 as a result of lower prices. However, the latest price surge may see that trend reverse, says Pan, telling Reuters that he expects nearly half of those mines to restart production should prices stay above $80.

Though only likely a coincidence, that bearish news on the outlook for iron ore prices coincided with some enormous losses in Chinese futures.

The May 2017 iron ore future on the Dalian Commodities Exchange slumped by 4.15% to 669.5 yuan, leaving it at the lowest levels since early February this year. It traded as high as 741.5 yuan less than two weeks ago.

There were also large declines recorded across rebar and coal futures, indicating that the weakness in iron ore was likely due to steel-linked factors.

SHFE Copper ¥48,220 , -1.41%
SHFE Aluminium ¥14,005 , -1.89%
SHFE Zinc ¥22,700 , -2.78%
SHFE Nickel ¥89,750 , -1.76%
SHFE Rebar ¥3,481 , -2.16%
DCE Iron Ore ¥669.50 , -4.15%
DCE Coking Coal ¥1,276.50 , -2.93%
DCE Coke ¥1,764.50 , -2.49%

Trade in Chinese commodity futures will resume at midday AEDT.

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