Iron ore has sprung back to life

Photo by Don Bartletti/Los Angeles Times via Getty Images

Iron ore prices sprung back to life on Wednesday, logging the largest increase seen in two weeks.

The price for benchmark 62% fines soared by 2.79% to $52.29 a tonne, according to Metal Bulletin, leaving the price at the highest level since June 13.

It was also the largest one-day percentage increase since June 7, and left the year to date gain at 20%.

According to Reuters, the gains were led by strength in Chinese steel futures which rose to a one-week high as a pickup in orders and steady inventory levels encouraged investors to wade back into the market.

“Investors have raised hopes that downside risk for prices is small after a big slump in May while steel mills’ orders unexpectedly picked up and market inventories did not pile up,” Zhao Chaoyue, an analyst with Merchant Futures in Shenzhen, told Reuters.

“A couple of mills that I’ve spoken to have seen their orders picking up in early June from the average level in May when sales were hit by a big slump in prices.”

Zhao also noted that inventory levels, something that tends to rise between June and August as hot weather hinders construction activity, had not been witnessed this year due to the government’s stimulus measures.

Following Wednesday’s steel-led surge, it appears that the iron ore rally may find additional legs on Thursday.

The most actively traded September 2016 futures contract on the Dalian Commodities Exchange rose by 2.36% to 390 yuan overnight, outpacing a 1.84% gain in rebar futures traded on the Shanghai Futures Exchange.

This suggests that another significant gain in the spot price appears likely should futures maintain or extend their gains today.

Trade in Chinese commodity futures will resume at 11am AEST.

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