Iron ore is closing in on $60 as Chinese steel prices surge

Derek Zoolander, blue steel exporter. Source: Village Roadshow.

The spot iron ore price rose for a fourth consecutive session on Monday, buoyed by renewed strength in steel prices.

According to Metal Bulletin, the spot price for benchmark 62% fines rose by 2.3%, or $1.32, to $58.82 a tonne, leaving the price up 11.2% from Tuesday last week. For the year the price has gained 35%, albeit in volatile trade.

According to Metal Bulletin, the gains in iron ore corresponded with another surge in Chinese steel prices.

“Ferrous futures in China surged in morning trading after the Tangshan Iron & Steel Association published detailed plans late last Friday for production cuts in Tangshan ahead of the International Horticultural Expo that begins in end April,” said Metal Bulletin.

“The plans specified enforced cuts for emissions-heavy plants to ensure good air quality during the horticultural expo. Mills and coking plants in the country‚Äôs steelmaking hub will be required to limit production on 33 selected days that coincide with several key events during the half-year-long expo to cut their emissions by at least 30-50%, depending on their proximity to the event.”

The twin spikes in iron ore price of recent weeks, shown clearly in chart above, both corresponded around announcements to do with the International Horticultural Expo, adding credence to the view that the government-imposed slowdown is impacting steel prices and, as a consequence, those for iron ore.

A recent improved in Chinese housing data — both for house prices and construction — may have also contributed to recent strength. However, given unsold inventory of 52 months at the current pace of sales, one has to wonder how long this improvement can last, particularly for construction.

Some also suggest that the decision to reintroduce margin lending in Chinese stocks may have also boosted sentiment towards iron ore, a tedious link devoid of fundamentals if true.

Suggesting that the recent rally in the spot price may ease today, gains in Chinese iron ore and rebar futures slowed in overnight trade. Rebar futures on the Shanghai Futures Exchange rose by 1.56%, outpacing a 0.44% increase in iron ore futures on the separate Dalian Commodities Exchange.

Both will resume trade at 12pm AEDT.

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