Iron ore has surged to a multi-month high and it looks like there are more gains to come

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Iron ore spot prices surged to the highest level in over two months on Monday, propelled higher on the news that China produced more steel than ever before in June.

And, with Chinese futures ripping higher overnight, it looks likely that there’ll be further gains to come on Tuesday.

According to Metal Bulletin, the price for benchmark 62% fines rose 1.63% to $66.81 a tonne, leaving it sitting at the highest levels since May 3.

From the recent low of $53.36 a tonne hit on June 13, the benchmark price has now added more than 25% — a more than handy return in a little over a month.

In comparison to the benchmark, higher grades outperformed lower grades during the session.

Metal Bulletin said Brazilian ore with 65% Fe content jumped 2.43% to $84.30 a tonne. The price for 58% fines rose by a smaller 1.43%, finishing the session at $46.15 a tonne.

The surge across spot markets followed the release of strong Chinese Q2 GDP figures earlier in the session, including the news that crude steel output from the world’s largest producer surged to the highest level on record in June.

According to China’s National Bureau of Statistics, steel output surged to 73.23 million tonnes, surpassing the previous record of 72.78 million tonnes reported in April.

Over the half, China produced 419.75 million tonnes of crude steel, up 4.6% on the same period a year earlier.

China monthly crude steel output. Source: Thomson Reuters

Clearly strong margins and demand is prompting mills to increase production levels, adding support to iron ore and coking coal prices.

Despite strong steel output levels, rebar inventories in China fell to just 370.4 million tonnes last week, according to data from Shanghai Steelhome. That’s the lowest level since December last year.

Inventory levels tend to increase rapidly in Q4 and in early Q1 each year ahead of China’s peak construction season in spring and early summer.

Analysts at Metal Bulletin said the rally in Chinese steel and bulk commodity prices began even before the nation’s GDP report was released.

“Billet prices rose 40 yuan per tonne over the weekend before increasing by another 30 yuan per tonne on Monday morning,” the group said, adding that “the strength in the market for the semi-finished product stimulated buying interest for rebar with participants expecting prices for the long steel to rise.”

That led to continued buying across rebar and bulk commodity futures on Monday, with that form being maintained overnight.

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

SHFE Rebar ¥3,620 , 0.17%
DCE Iron Ore ¥514.50 , 4.79%
DCE Coking Coal ¥1,223.00 , 1.70%
DCE Coke ¥1,901.00 , 1.14%

As it shows, there was one standout performer for the session: iron ore.

The most actively traded September 2017 contract on the Dalian Commodities Exchange jumped 4.79% to 514.5 yuan per tonne, leaving it sitting at the highest level since May 3.

All other contracts gained for the session, albeit by a smaller margin.

Trade in Chinese commodity futures will resume at 11am AEST, 30 minutes before the release of Chinese new home prices for June, a report that is often influential on movements seen during the session.

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