Iron ore futures hit record highs as Chinese inventories slide again

Kevin Frayer/Getty ImagesYes, that way.
  • Chinese iron ore futures have surged to fresh record highs on Monday.
  • Prices for major iron ore grades closed at or near multi-year highs on Friday.
  • The Commonwealth Bank now expects prices will stay higher for longer than it previously forecast, describing the recent decline in Chinese iron ore port inventories as a “major worry”.
  • Chinese port stockpiles fell to the lowest level since early 2017 last week, according to data from Mysteel Consultancy.

Chinese iron ore futures continue to soar, climbing again on Monday.

The September 2019 contract on the Dalian Commodities Exchange closed at 763.5 yuan at the mid-session break, leaving it at the highest level on record.

RefinitivDalian Iron Ore Sept 2019 contract.

It’s now rallied 74% from late November last year, mirroring similar bullish price action in spot markets over the same period.

On Friday, prices for 58%, 62% and 65% iron ore fines closed at or just shy of multi-year highs, according to Metal Bulletin.

With Chinese futures continuing to soar on Monday, there may well be further gains to come in physical markets when Metal Bulletin releases its daily Iron Ore Index later in the session.

The continued price surge has analysts scrambling to revise up their iron ore forecasts, including at the Commonwealth Bank.

In a note released on Monday, Vivek Dhar, mining and energy commodities analyst at the bank, said he now expects the benchmark spot price for 62% fines to remain higher for longer compared to his previous forecasts.

“While we have always talked about iron ore prices hitting $100 a tonne, supply and demand factors are now aligned enough to justify that outcome for a little while longer,” he said, referring to the chart below showing the bank’s latest forecasts compared to those previously offered.

Commonwealth Bank

“We’ve upgraded our iron ore prices by 7% to $92 a tonne in 2019 and 3.5% to $74 a tonne in 2020.”

Dhar said that declining iron ore port stockpiles in China, reflecting record steel production in the nation and iron ore supply disruptions in Brazil, remain a “major worry”.

“The fact that benchmark prices are already around $104 a tonne with port stockpiles around 128 million tonnes means that shortage concerns are likely to intensify as we continue to see port stockpiles fall,” he said.

“Keep in mind that around 120 million tonnes is a ‘safe’ level for port stockpiles and price are surging even before we’ve touched that level.”

According to data from Mysteel Consultancy, Chinese iron ore port inventories have tumbled from 148.9 million tonnes in mid-April to 127.8 million tonnes last week.

Along with disruptions to Brazilian seaborne supply as a result of a deadly mine disaster at an iron ore facility operated by Vale in late January, the decline also reflects strong Chinese demand with crude steel output surging to the highest level on record during April, according to official data released by China’s National Bureau of Statistics (NBS).

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