Iron ore is looking bullish as Chinese futures surge

Photo by Pablo Blazquez Dominguez/Getty Images

For every pullback in the iron ore price right now, it is almost always followed by an even larger increase.

That was the case again on Monday with Friday’s small decline followed by yet another solid, and larger, increase.

According to Metal Bulletin, the spot price for benchmark 62% fines rose by another 0.95% to $59.28 a tonne, leaving it sitting at the highest level seen since September 2.

It has now gained 6.1% since the Golden Week holiday in China in early October, extending the gain this year to 36.1%.

The rebound in spot markets followed news that large Chinese steel mills increased output in early October compared to the levels seen in late September.

“Major mills in China raised their crude steel output in early October after a drop in late September,” said Metal Bulletin.

“CISA members produced crude steel at an average rate of 1.7429 million tonnes per day during the first ten days of October, up 1.3% from a rate of 1.7209 million tonnes per day over the last ten days of September, according to data released by the industry body on Monday.”

Chinese steel output has risen on an annualised basis in each of the past seven months, no mean feat given the government has now completed more than 80% of this year’s planned capacity reduction goals for the sector, according to China’s Ministry of Industry and Information Technology.

This underscores the ongoing strength in steel prices seen this year, and helps explain why prices for inputs such as iron ore and coking coal have also remained firm.

And it looks like this strength will continue today if the movements in Chinese commodity futures in overnight trade are anything to go by.

They’ve soared yet again.

The January 2017 iron ore future on the Dalian Commodities Exchange last traded at 466.5 yuan, up a whopping 4.83% for the session. It last traded at this level all the way back on August 25.

There were also strong gains recorded in rebar and coking coal futures, albeit on a smaller scale.

Trade in Chinese commodity futures will resume at midday AEDT.

Given its proximity and the surge in Chinese futures seen overnight, should that bullish price action be maintained, it suggests there’s a good chance that the benchmark spot price could pop above the $60 a tonne level when Metal Bulletin releases its daily iron ore index after 9.30pm AEDT.

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