Iron ore is still charging higher

Photo by Christian Petersen/Getty Images

Iron ore spot markets surged for a second consecutive session on Monday, boosted by continued gains in Chinese steel prices.

According to Metal Bulletin, the spot price for benchmark 62% fines jumped by 2.8% to $76.17 a tonne, leaving it sitting at the highest level since April 6.

It has now gained 42.7% since hitting a one-year low of $53.36 a tonne on June 13, and is now flat for the year.

However, as seen in the daily chart below, that masks the enormous swings — both up and down — seen over the past seven and a bit months.

Like the benchmark price, both lower and higher grade ores screeched higher during the session.

58% fines was the standout performer, soaring 3.8% to $51.67 a tonne. Brazilian ore with 65% Fe content rose by a smaller 2.6%, settling at $93..70 a tonne.

All grades currently sit at multi-month highs, supported by Chinese steel prices which hit multi-year highs on Monday.

“China’s spot rebar prices skyrocketed on Monday on the back of big gains in the billet market over the weekend. The billet market gained 120 yuan per tonne over the weekend after Hebei’s provincial government announced steel production restrictions for the winter late last Friday,” said analysts at Metal Bulletin.

“The increases gave both the spot rebar and futures markets a big upward push on Monday, with buyers procuring more materials on expectations of higher prices.”

Earlier this year the Chinese government ordered steel producers in 28 cities to slash output during winter in an attempt to improve air quality, including in the key steel producing area of Tangshan.

Last week the Chinese government called on steel producers in four northern provinces, including the steel-hub of Hebei, to halve output levels from late November to late February in an attempt to improve air quality.

The expected decline in output levels, coming at a time when steel inventories are low and demand high, has seen steel prices soar this year, encouraging Chinese steel mills to increase output levels to take advantage of strong operating margins.

That in turn helped to bolster iron ore demand, partially explaining the large gains seen in recent months.

However, after two days of enormous gains, Chinese commodity futures eased lower overnight, hinting that spot markets may slide or consolidate upon their gains today.

Here’s the scoreboard from the overnight session in China.

SHFE Rebar ¥3,944 , 0.95%
DCE Iron Ore ¥571.00 , 1.33%
DCE Coking Coal ¥1,298.00 , 2.93%
DCE Coke ¥2,094.00 , 2.37%

While they all point to large gains, rebar and iron ore futures both finished well of the highs seen during Monday’s day session. Rebar futures briefly traded at 4,013 yuan per tonne on Monday while Dalian iron ore also touched a high of 587.5 yuan per tonne.

Trade in Chinese commodity futures will resume at 11am AEST, around a hour before the release of Chinese international trade figures for July.

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