Iron ore is rallying again, and Credit Suisse thinks there's further gains to come

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Iron ore spot markets rallied hard on Wednesday, mirroring the move seen in Chinese futures earlier in the session.

According to Metal Bulletin, the spot price for benchmark 62% fines jumped 1.68% to $62.20 a tonne — the largest one-day percentage gain since April 28 — leaving it sitting at the highest level in two weeks.

From the multi-month low of $60.15 struck on May 8, it has now gained 3.8%. However, even with the recent move, it has still fallen 21.1% year to date.

Both higher and lower grade ores also bounced, particularly the price of 58% fines which added a nifty 2.97%, finishing at $41.96 a tonne.

The move in iron ore markets followed a strong rally in steel prices, said Metal Bulletin.

“China’s spot rebar prices rose sharply on Wednesday as futures surged amid active trading,” the group wrote in a note released overnight. “Futures logged big increases during the day, which led to trading activity picking up and prices rising in the spot market.”

In a sign that the move may continue today, Metal Bulletin said that market participants expect futures to rise further to close the gap with spot prices.

Looking further ahead, analysts at Credit Suisse think the recent rebound in iron ore markets may be sustained in the months ahead.

“Given solid demand on the ground, record iron ore consumption, and our view that the macro environment will be positive into the year end, we believe risks are now weighted to the upside for the iron ore price in Q3,” the bank said in a note released earlier this week. “We do not expect a rapid rebound in pricing, but we believe the price can rise from the current iron ore price of $61 a tonne. We retain our forecast of $70 a tonne for Q3.”

That forecast, the bank says, is partially underpinned by an expectation that the government will seek a “strong and stable economy” before the 19th Party Congress later in the year.

Hinting that Wednesday’s move may be sustained today, Chinese commodity futures consolidated their day-session gains in overnight trade.

The most actively-traded September 2017 iron ore future closed up 1.38% at 479 yuan, while the October 2017 rebar future on the Shanghai Commodities Exchange rose 1.76% to 3,120 yuan.

There were also solid gains recorded in coke and coking coal futures.

SHFE Rebar ¥3,120 , 1.76%
DCE Iron Ore ¥479.00 , 1.38%
DCE Coking Coal ¥1,049.50 , 1.11%
DCE Coke ¥1,554.00 , 1.47%

Trade in Chinese commodity futures will resume at 11am AEST, 30 minutes before the release of Chinese new house price data for April.

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