Iron ore futures are flying as Chinese steel prices surge again

Photo by Yuli Seperi/Getty Images

Iron ore futures in China have started the new week as they ended the last: screeching higher upon the resumption of trade on Monday.

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

SHFE Rebar ¥4,095 , 6.84%
DCE Iron Ore ¥607.00 , 5.75%
DCE Coking Coal ¥1,276.50 , -1.01%
DCE Coke ¥2,090.00 , 2.68%

The most actively traded September 2017 iron ore contract in Dalian is now up 5.75%, having climbed to as high as 619 yuan per tonne earlier in the session.

It currently sits at the highest level since March 22, extending its rally from June 14 to over 46%.

The strength in iron ore mirrors another jaw-dropping surge in rebar futures traded separately on the Shanghai Futures Exchange.

The October 2017 contract is currently up 6.84% at 4,095 yuan, rising above the 4,000 yuan per tonne level since February 2013. It briefly touched a high of 4,101 yuan in early trade.

SHFE Rebar Weekly Chart. Source: Thomson Reuters

Strength in Chinese steel prices, driven by low inventory levels and strong demand, has seen Chinese steel mill margins balloon in recent months, encouraging firms to raise output levels to take advantage of strong operating conditions.

That in turn helped to bolster iron ore demand, explaining the large gains seen in recent months.

Analysts said the moves today were likely exacerbated by concerns that curbs on steel production during the Chinese winter could lead to supply shortages.

“In anticipation of less supply of steel, there should be some traders and end-users bringing forward their purchase plan,” Richard Lu, analyst at CRU consultancy in Beijing, told Reuters.

“Because of expectations of reduced supply, prices may rise further in coming months, so it’s better to buy now,” Lu added.

Earlier this year the Chinese government ordered steel producers in 28 cities to slash output during winter in an attempt to improve air quality, including in the key steel producing area of Tangshan.

The government then called on steel producers to halve output in four northern provinces — Hebei, Shanxi, Shandong, Henan — as well as Beijing and Tianjin, during the peak winter heating months around late November to late February, said Reuters.

According to Metal Bulletin, the price for benchmark 62% fines soared 1.6% to $74.12 a tonne last Friday, leaving it sitting at the highest level since April 11 this year.

Last week it surged 7.8%, extending its rally from mid-June to 38.9%.

Given the scale of the gains in futures markets today, it looks like that strength will continue when Metal Bulletin releases its daily iron ore index later in the session.

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