Iron ore futures surge again

Photo by Michael Dodge/Getty Images

Chinese iron ore futures continued to surge on Friday evening, extending the hefty gains achieved earlier in the session.

The most actively traded January 2018 contract on the Dalian Commodities Exchange finished Friday’s night session up 2.51% at 592 yuan per tonne, leaving it sitting at the highest level since August 25.

It has now rallied over 9% in the past three days.

The surge in iron ore futures coincided with even larger gains in Chinese rebar futures on the Shanghai Futures Exchange during the session.

The January 2018 contract closed trade at 4,148 yuan per tonne, up 3.88% for the session.

The latest flurry of buying left futures at the highest level in four years, fuelled by a raft of bullish Chinese industrial data released in the latter parts of the week.

On Thursday, China’s steel industry PMI hit the highest level in 16 months in August, underpinned by huge increases in production and new orders. Adding to optimism, the separate Caixin-Markit manufacturing PMI rebounded to a six-month high over the same period, underpinned by export sales which grew at the fastest pace in seven years.

The strength in both series points to strengthening demand which, at a time of elevated margins, is encouraging steel mills to lift output levels. This is flowing through to demand for iron ore and coking coal, helping to explain the scale of recent gains.

“Prices continue to be driven by demand factors in China, but a falling US dollar has also contributed significantly to the pick-up,” said Vivek Dhar, mining and energy commodities analyst at the Commonwealth, on Friday. “As long as steel margins remain elevated, the incentive for steel mills is to purchase iron ore to boost steel production in the short-term.”

Here’s the final scoreboard for Friday’s night session.

SHFE Rebar ¥4,148 , 3.88%
DCE Iron Ore ¥592.00 , 2.51%
DCE Coking Coal ¥1,482.50 , 2.84%
DCE Coke ¥2,379.00 , 0.81%

Trade in Chinese commodity futures will resume at 11am AEST. That will be followed by the release of spot pricing from Metal Bulletin later in the session following a public holiday in Singapore on Friday.

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