Iron ore spot markets fell heavily on Friday after hitting fresh four-month highs on Thursday, undermined by a sharp slide in Chinese futures markets earlier in the session.
According to Metal Bulletin, the spot price for benchmark 62% fines fell 1.94% to $75.19 a tonne, reversing a similarly-sized gain on Thursday.
The weakness in the benchmark price flowed through to both higher and lower grades during the session. 58% fines slumped 2.86% to $49.59 a tonne while ore with 65% Fe content fell by a smaller 1.57% to $94 a tonne.
The declines followed a sharp reversal in rebar and iron ore futures on Friday, coinciding with a warning from the China Iron and Steel Association (CISA) that recent gain in steel prices was “not driven by market demand or reduced market supply”.
From early June to Thursday last week, the most actively traded January 2018 rebar contract on the Shanghai Futures Exchange had rallied by as much as 50%, leading to large gains in iron ore and coking coal futures over the same period.
Some analysts said the warning from CISA drove the price slide on Friday.
“These warnings serve the purpose … to cool down markets or to see some consolidation in commodity prices,” Helen Lau, Argonaut Securities analyst, told Reuters. “We think the government wants to ensure stable development in markets and does not want to see quick boom and bust cycles fuelled by speculation.”
However, casting doubt as to whether the weakness in steel prices will last, Chinese futures markets stabilised on Friday evening.
Here’s the final scoreboard from Friday’s night session.
SHFE Rebar ¥3,836 , -1.82%
DCE Iron Ore ¥537.50 , -2.54%
DCE Coking Coal ¥1,317.00 , -1.75%
DCE Coke ¥2,158.00 , -0.87%
Rebar and iron ore futures had traded as low as 3,786 yuan and 527.5 yuan respectively during Friday’s day session.
The rebound hints that the weakness in spot iron ore markets may not last given strong fundamentals at present.
“The recent lift in prices largely reflects stronger steel mill margins,” said Vivek Dhar, mining and energy commodities analyst at the Commonwealth Bank. “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.”
On Monday, China will release urban fixed-asset investment and industrial output figures for July — two data points that could move commodity futures during today’s trading session.
They’ll arrive at midday AEST, one hour after the resumption of trade in futures markets.