Iron ore is on a rare winning streak

Photo by Ethan Miller/Getty Images

Iron ore spot markets rallied for a fourth consecutive session on Monday, benefiting yet again from strength in Chinese bulk commodity futures.

According to Metal Bulletin, the price for benchmark 62% rose by a further 1% to $56.30 a tonne, leaving it at the highest level since May 31.

At four consecutive sessions, its winning streak is now the longest since mid-February this year.

While four gains on the trot doesn’t sound like an overly long stretch of gains, it’s clear from the chart below that the benchmark price has has a tough time of it since late February, even with the recent bounce.

From February 21 this year it is still down 40.6%.

Mirroring the performance of the benchmark, both higher and lower grade ores also rallied during the session, particularly for the latter.

The price for 58% fines jumped 2.2% to $38.91 a tonne.

Metal Bulletin said that it was a familiar pattern that drove the move across iron ore markets on Monday.

“China‚Äôs spot rebar prices rebounded on Monday with the billet market strengthening further after futures turned around,” it said. “Gains in the billet and futures markets during the day pushed up spot rebar prices.”

That in turn helped to support the prices for steel inputs such as coking coal and iron ore.

That’s been a consistent factor underpinning gains across iron ore markets in recent days.

Talk that Chinese regulators may open up commodity futures trading to more market participants over the weekend may have also contributed to the strength seen on Monday.

Providing little indication as to whether the futures-led rebound will continue into a fifth session today, Chinese futures were largely unmoved in overnight trade.

Rebar futures in Shanghai lost 0.06%, closing at 3,135 yuan a tonne. It was a similar story for iron ore futures traded in Dalian which lost 0.12% to 433 yuan a tonne.

Trade in Chinese futures will resume at 11am AEST.

Beyond the short-term fluctuations in the iron ore price, it’s clear that few expect the long-term outlook for prices will be higher.

In a note released earlier this week Citibank, already among those expecting iron ore prices to slide over the next couple of year, further reduced its forecasts for the benchmark spot price.

It now sees it finishing 2017 below $50 a tonne before bottoming in the March quarter of 2018 at $46 a tonne.

Analysts at the bank say that a period of price weakness will be required to dissuade high-cost iron ore miners from continuing operations, helping to restore balance to the market.

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