Iron ore hits a 2-week high, and it looks like there are further gains to come

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Iron ore spot markets hit a two-week high on Friday, boosted by gains in Chinese steel prices earlier in the session.

According to Metal Bulletin, the spot price for benchmark 62% fines rose by 1.77% to $62.69 a tonne, leaving it sitting at the highest level since May 4.

It has now added 4.22% since hitting a multi-month low of $60.15 a tonne on May 8, although it still remains down 20.5% year to date.

Both higher and lower grade ores also rose over the session, although not to the same degree as the benchmark price.

Analysts at Metal Bulletin put the rally down to renewed strength in Chinese steel prices, driven primarily by a surge in Chinese rebar futures earlier in the session.

“China’s spot rebar prices picked up some more upward momentum on Friday as the paper market strengthened further before the weekend,” it said. “Spot prices in Shanghai rose sharply following a surge in the paper market.”

And given the scale of the move in Chinese futures on Friday evening, it suggests the rally in spot markets — both for rebar and iron ore — may not be over yet.

The most actively traded October 2017 rebar future on the Shanghai Futures Exchange soared by over 4%, closing the session at 3,334 yuan, the highest level since March 21. From the low of 2,775 yuan seen on April 21, it has now gained over 20%.

The strength in rebar futures flowed through to iron ore futures traded separately on the Dalian Commodities Exchange.

The September 2017 contract jumped by 4.01% to 493 yuan, seeing it move back to the highest level seen since May 4.

Coking coal and coke futures also preformed strongly, hinting that broader sentiment towards steel markets drove the broader move.

SHFE Rebar ¥3,334 , 4.65%
DCE Iron Ore ¥493.00 , 4.01%
DCE Coking Coal ¥1,069.50 , 2.59%
DCE Coke ¥1,597.50 , 2.87%

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

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