The iron ore rally is looking like an unstoppable beast right now.
It closed at a more than two-year high on Wednesday, powered by yet another jaw-dropping surge in Chinese futures.
According to Metal Bulletin, the spot price for benchmark 62% fines jumped by 3.2% to $82.25 a tonne, leaving it at the highest level seen since October 15, 2014.
The benchmark price has now rallied 17% since November 21, extending its gain in 2016 to 88.8%.
From the record low of $38.30 a tonne struck on December 11 last year, its now surged a remarkable 115%.
Like benchmark ore, the price for both lower and higher grade ore also gained on Wednesday, albeit to a lesser margin.
The move in spot markets followed an even larger rally in Chinese futures, led by continued strength in steel prices.
According to Reuters, traders were replenishing steel inventories on hopes firm demand will be sustained next year as China’s manufacturing sector recovers and Beijing spends more on infrastructure projects.
“The reason why the steel market remains strong even though seasonally it’s a weak period is mainly due to supply-side tightness,” Helen Lau, analyst at Argonaut Securities, told Reuters. “Also the macroeconomic momentum is different from the same period last year.”
Others cited ongoing environmental inspections in China in Beijing’s efforts to tackle pollution have restricted output at steel mills, further tightening supply.
“Chinese public news agencies reported that Hebei has joined the growing list of provinces being investigated over the production of substandard steel, along with Jiangsu, Shandong, Liaoning and Sichuan provinces,” said analysts at Metal Bulletin.
“Following orders issued by the provincial government, officials in Tangshan in Heibei have started investigating local induction furnaces and the quality of the rebar and billet produced from those facilities.
“The speculation that the investigations could cause tighter supply pushed up both futures and spot market prices,” it added.
Some, such as Wayne Gordon, executive director for commodities and foreign exchange at UBS’ wealth-management division, suggested that the rally is continuing to be driven by short-term speculative forces.
“Iron ore is weird because the inventories are very high in China and it’s got to be pure spec[ulative] flows,” he said in an interview with Bloomberg.
Whatever the reason for the rally, whether a combination of all, one or none, it looks set to continue yet again on Thursday.
Yes, Chinese futures were up again in overnight trade. It’s the rally that just won’t quit.
The May 2017 iron ore future on the Dalian Commodities Exchange closed at 634.0, up 0.96% for the session. There were similar gains recorded in coke, coking coal and rebar prices, suggesting that the move is likely being driven by sentiment towards the outlook for steel prices.
Trade in Chinese futures will resume at Midday AEDT, just a hour before the release of Chinese international trade data for November.