Iron ore is trading mixed as higher grades soar while lower grades plunge

Gary Wolstenholme/Redferns via Getty Images

Iron ore spot markets diverged significantly on Tuesday with higher grades soaring while lower grades plunged.

According to Metal Bulletin, the spot price for benchmark 62% fines rose by 0.23% to $56.03 a tonne, recouping some of the 3.3% fall recorded on Monday.

While the benchmark price barely moved, something of an oddity in itself given some of the wild moves seen in recent days, there was an even more unusual development during the session — there was a divergence in prices, snapping a sequence of all grades moving unilaterally in the one direction.

The price for 58% fines plunged 2.42% to $37.96 a tonne, a movement in complete contrast to that of 65% Brazilian ore which soared 3.02% to $71.60 a tonne.

The divergent price action suggests an increase in demand from steel mills for higher grade, more efficient ore.

“Strong margins have reportedly created impetus for improved productivity, helping increase demand for high grade iron ore,” said Vivek Dhar, mining and energy commodities analyst at the Commonwealth Bank, earlier this week.

“We saw similar behaviour earlier in the year when the 62% Fe benchmark price rallied above $US90 a tonne. We continue to see upside risks for iron ore prices in the near term as long as steel margins remain healthy.”

Thanks to declines in prices for iron ore and coking coal, along with strength in steel prices, margins at Chinese steel mills — the largest producers globally — have swelled to the highest levels seen in several years in recent weeks.

Providing no indication as to what direction spot markets will move on Wednesday, Chinese commodity futures finished mixed in overnight trade.

The most actively traded September 2017 iron ore future on the Dalian Commodities Exchange closed down 1.04% at 427.5 yuan, taking it back towards the lows seen last week.

However rebar futures, traded separately on the Shanghai Futures Exchange, stabilised after several days of losses, rising 0.54% to 2,957 yuan.

Coking coal and coke futures also finished mixed.

SHFE Rebar ¥2,957 , 0.54%
DCE Iron Ore ¥427.50 , -1.04%
DCE Coking Coal ¥960.00 , -0.16%
DCE Coke ¥1,410.00 , 0.57%

Trade in Chinese commodity futures will resume at 11am AEST.

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