Iron ore's recovery has turned into a full-on buying frenzy

Buy, Buy, Buy (Getty/Mario Tama)

Chinese iron ore futures are powering higher on Monday, adding to the gains achieved on Friday evening.

Here’s the scoreboard at the mid-session break on Monday.

SHFE Rebar ¥3,743 , 3.08%
DCE Iron Ore ¥464.00 , 5.22%
DCE Coking Coal ¥1,171.00 , 3.13%
DCE Coke ¥1,798.00 , 3.90%

At 464 yuan, the January 2018 iron ore contract in Dalian now sits at the highest level since October 25, extending its gains from the lows seen last week to over 10%.

There have also been solid gains posted in coking coal and coke futures which have jumped by 3.1% and 3.9% respectively, mirroring a similarly-sized gain in rebar futures in Shanghai.

Some have put the rally down to optimism that upcoming steel production cuts in China, coming at a time when underlying demand for steel remains firm, will help to boost demand for iron ore, coke and coking coal next year when these curbs are lifted.

“The market is getting increasingly bullish about demand in 2018,” said Daniel Hynes, commodity strategist at ANZ Bank. “With expectations of underlying demand to remain strong, this should see pent up demand hit the market when the curbs end.”

Chinese policymakers will enforce steel production cuts in winter months in an attempt to improve air quality in northern Chinese provinces.

The cuts, scheduled to be fully implemented next week, had previously raised concern about the demand outlook for iron ore and coking coal from Chinese steel mills.

Based on the price action seen today, that no longer appears to be the case.

It’s also likely that speculative buying, particularly given the inability for futures to push lower last week, may also be contributing to the large gains seen today.

Trade in Chinese commodity futures will resume at 4pm AEDT.

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