Iron ore spot markets made it four gains in the past five sessions on Monday, hitting a more than two-week high in the process.
The price for benchmark 62% fines rose by a further 0.8% to $63.19 a tonne, according to pricing from Metal Bulletin, extending its gain from May 8 to over 5%.
Despite concern surrounding inventories of lower grade ores held at Chinese ports, the price for 58% fines actually outperformed the benchmark, rising 1.45% to $42.55 a tonne.
Continuing a familiar pattern, Metal Bulletin said that strength in iron ore coincided with further price gains in Chinese steel markets.
“China’s spot rebar market surged on Monday after a major producer announced higher ex-works prices,” it said. “Shagang, a major long steel producer in east China, raised the ex-works prices for its late-May delivery rebar by 300 yuan per tonne.”
The group said that further solid gains in rebar futures on the Shanghai Futures Exchange “provided an additional driver for the spot rebar market”.
Last week, Vivek Dhar, mining and energy analyst at the Commonwealth Bank, said that a combination of lower-than-normal steel inventories in China and higher steel mill margins could act to support iron ore prices in the near-term.
“Chinese steel rebar stockpiles are now nearly 30% below the historic average. Together with a rebound in steel mill margins, there is a real chance that iron ore prices could rebound in the short term,” he said.
There’s low inventory levels and profitability is high, in other words, something that could help boost steel production and with it iron ore demand.
Dhar recommended that investors should watch for a pick-up in steel output rates in China to confirm stronger iron ore demand.
Providing no clear indication as to whether the strength in steel and iron ore prices will continue on Tuesday, the moves in Chinese commodity futures were limited in overnight trade.
The September 2017 iron ore future on the Dalian Commodities Exchange rose 0.2% to 495.5 yuan, finishing fractionally above Monday’s day session close of 494 yuan.
It was a similar story for rebar futures which added 0.46% to 3,340 yuan, again finishing around the same levels seen for Monday’s day session close.
Here’s the full overnight scoreboard.
SHFE Rebar ¥3,340 , 0.45%
DCE Iron Ore ¥495.50 , 0.20%
DCE Coking Coal ¥1,051.00 , -1.08%
DCE Coke ¥1,566.00 , -1.07%
Trade in Chinese commodity futures will resume at 11am AEST.