Iron ore markets are stirring as China returns from holiday

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Iron ore markets are stirring as China returns from its week-long holiday.

The initial moves have been to the downside, driven by a weakness in steel prices.

According to Metal Bulletin, the spot price for benchmark 62% fines fell 0.3% to $78.20 a tonne, registering the first move of any significance since February 14.

The weakness in the benchmark was also seen across lower grades with the price for 58% fines sliding 0.6% to $44.06 a tonne.

Higher grades bucked the trend with ore with 65% Fe content rising 0.2% to $94.60 a tonne.

Vivek Dhar, mining and energy analyst at the Commonwealth Bank, says a greater focus on environmental protection in China will likely keep the price discount for lower grades elevated in the period ahead.

“While we expect that premium [for higher grades] to pull back slightly from current levels, we believe the broad preference for higher grade ores is a structural change in the market,” he says.

“China is looking to improve its environmental protection, which is consistent with the priorities of the Xi administration.”

The decline in mid and lower grades followed an ugly plunge in Chinese rebar futures which resumed trade after the week-long Lunar New year holiday.

The May 2018 contract finished trade down 1.7% at 3,866 yuan a tonne, having fallen to as low as 3841 yuan a tonne at one point during the session.

“Steel demand should be firmer when construction work resumes but it will not happen very soon,” a Shanghai-based trader told Reuters.

“Traditionally, most of the construction workers will stay at their hometown until early March.”

Chinese construction tends to accelerate in spring and autumn as weather conditions improve. Restrictions on steel production in China to help improve air quality over winter are also scheduled to end in mid-March.

Despite the falls in steel markets, iron ore futures bucked the trend with the May 2018 contract on the Dalian Commodities Exchange rising 0.6% to 538.5 yuan a tonne.

Coke and coking coal futures also finished in the black, closing at 2,176 yuan and 1,408.5 yuan a tonne respectively.

As seen in the scoreboard below, those same contracts put in a mixed performance in overnight trade.

SHFE Rebar ¥3,856 , -0.64%
DCE Iron Ore ¥541.00 , 0.65%
DCE Coking Coal ¥1,370.00 , -0.36%
DCE Coke ¥2,175.50 , 0.88%

Trade in Chinese commodity futures will resume at midday AEDT.

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