The price gap between iron ore grades continues to narrow

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  • Iron ore spot markets closed mixed on Thursday. Lower grades ripped higher while higher grades went backwards.
  • Chinese steel futures jumped in early trade before unraveling to close slightly lower for the session.
  • China will release manufacturing, non-manufacturing and steel industry PMI reports for November today. In the past they have generated significant volatility in spot and futures markets.

Iron ore spot markets took different paths on Thursday with lower grades ripping higher while higher grades went backwards.

A steep reversal in Chinese steel prices may have been a factor behind the divergence in spot markets.

According to Metal Bulletin, the price for benchmark 62% fines rose 0.2% to $66.51 a tonne, extending its bounce over the past three sessions to 3.5%.

Even with the gains in recent days, the benchmark has still fallen 12.6% since November 19.

While the benchmark continued to grind higher, higher grade ore went backwards with the price of 65% Brazilian fines dipping 0.6% to $82.40 a tonne.

In contrast, the price for 58% fines surged by 2.8% to $41.43 a tonne, it’s largest percentage gain in over a month. It’s also gained 4.3% over the past three sessions having fallen by the largest amount on record to start the week.

Given the divergence seen in spot markets on Thursday, the price discount for 58% fines compared to the benchmark narrowed to 37.7%, the lowest level since October 2017.

The price premium for 65% Brazilian fines compared to the benchmark also narrowed to 23.9%, moving back towards the multi-month low of 22.2% struck on November 19.

The mixed performance in spot markets may have been driven by a large reversal in Chinese steel futures during Thursday’s trading session.

After finishing at 3,636 yuan on Wednesday evening, rebar futures in Shanghai jumped to as high as 3,665 yuan before falling sharply to close at 3,605 yuan. Similar price action was also evident in hot-rolled coil futures.

Having bounced in recent sessions after being pummeled earlier in the week, bulk commodity futures in Dalian consolidated upon recent gains.

Iron ore, coking coal and coke futures finished at 476, 1,338 and 2,126 yuan respectively having closed Wednesday’s night session at 474, 1,335 and 2,132 yuan.

As seen in the scoreboard below, there was little movement upon those levels in overnight trade at Thursday.

SHFE Hot Rolled Coil ¥3,462 , 0.46%
SHFE Rebar ¥3,593 , -0.66%
DCE Iron Ore ¥479.50 , 1.16%
DCE Coking Coal ¥1,337.00 , 0.26%
DCE Coke ¥2,128.00 , 0.33%

The mixed price action offers few clues as to what direction spot markets may move on Friday.

That may well change later in the session as the Chinese government releases manufacturing, non-manufacturing and steel industry PMI reports for November at midday AEDT, the same time that Chinese commodity futures resume trade.

In the past these releases, on occasion, have generated significant volatility in spot and futures markets.

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