Iron ore is acting like a casino

Photo by Christopher Furlong/Getty Images

Iron ore, Australia’s largest export by dollar value, is now more akin to a casino than a market.

One just has to look at the last ten daily moves as evidence: -1%, -3.4%, +6.5%, +1.3%, +1.4%, +3.5%, +1.5%, -4.4% and -6.8%.

Then, on Thursday, the wild swings got taken to a whole new level with the spot price for benchmark 62% fines jumping by 8.7% to $78.36 a tonne, according to Metal Bulletin.

The croupier rolled black on this occasion.

It was the largest percentage gain recorded since April 21 this year, a period that coincided with another speculative frenzy in Chinese futures, just like now.

Combined with Wednesday’s plunge, the move from top to bottom to top over the past two sessions was 15.5%.

The move in the spot price followed a rebound in Chinese futures that was spurred on by strong Chinese economic data, said analysts at Metal Bulletin.

“China’s ferrous futures rebounded during the morning session on Thursday after two days of sharp decreases, amid further gains in the country’s steel purchasing managers’ index,” the group said.

The PMI rose 0.3 points to 51.0 with the new orders subindex surging higher, pointing to strong activity levels in the period ahead.

However, in the separate non-manufacturing PMI report released by the government, activity levels in China’s construction and real estate sectors slowed in November, casting doubt over future demand given these sectors are the largest end users of steel within the Chinese economy.

One suspects that fundamental factors didn’t have anything to do with the rally seen on Thursday, or the wild swings in the two weeks beforehand.

Speculation is almost entirely responsible for the market moves. The price action says so.

And it looks set to continue on Friday, with iron ore futures ripping higher yet again in overnight trade.

The most actively traded May 2017 contract on the Dalian Commodities Exchange closed at 592.5 yuan, up another lazy 3.4% for the session.

Rebar futures traded separately on the Shanghai Futures Exchange — somewhat of a lead indicator for iron ore — also surged by 3.1%.

However, coking coal and coke futures didn’t join in the rally, slumping by 4% apiece. This is unusual, particularly as these contracts usually rally in unison given the linkages between them.

Futures markets will reopen at midday AEDT.

Here’s the overnight scoreboard for both base and bulk commodity futures:

  • SHFE Copper ¥47,070 , -0.15%
  • SHFE Aluminium ¥13,420 , -0.19%
  • SHFE Zinc ¥22,875 , 0.02%
  • SHFE Nickel ¥92,950 , 0.15%
  • SHFE Rebar ¥3,182 , 3.08%
  • DCE Iron Ore ¥592.50 , 3.40%
  • DCE Coking Coal ¥1,269.00 , -3.97%
  • DCE Coke ¥1,737.50 , -3.87%

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