Iron ore markets aren't interested in the trade war

Tim Graham/Getty Images
  • Iron ore spot markets were mixed to start the week.
  • There was little reaction to an escalation in trade tensions between the US and China, something that saw Chinese stocks and yuan come under pressure during the session.
  • Westpac Bank has revised up its iron ore forecasts, seeing the benchmark price average $91 a tonne throughout 2019.

With the exception of an abrupt drop in the benchmark price, movements across iron ore spot markets were limited on Monday.

After surging to the highest level since July 2014 on Friday, the price for benchmark 62% iron ore fines tumbled 1.2% to $96.10 a tonne, according to Metal Bulletin.

In contrast, movements across lower and higher grades were close to non-existent.

58% fines added a solitary cent to settle at $83.11 a tonne. 65% fines went in the other direction, slipping 0.1% to $111.40 a tonne.

The mixed performance in spot markets mirrored that of Chinese bulk commodity futures on Monday.

According to pricing from the Dalian Commodities Exchange, the most actively traded September 2019 iron ore contract rose to 653.5 yuan, up from 651.5 yuan on Friday evening.

That was despite substantial declines in Chinese stocks and yuan during the session as trade tensions between the United States and China ratcheted higher.

“Ongoing supply issues have seen the bulk commodity sector protected from the issues surrounding the US-China trade talks,” said analysts at ANZ Bank.

Similar sentiment was expressed by Vivek Dhar, Mining and Energy Commodities Analyst at the Commonwealth Bank.

“Iron ore, which is driven primarily by physical buying and selling, should be the most resilient to a trade war,” he said.

Coking coal and coke futures, also for delivery in September, slid to 1350.5 and 2,126.5 yuan respectively, down from Friday’s night session close of 1,359 and 2,163.5 yuan.

Contributing to the weakness in some bulk commodity contracts, rebar and hot-rolled coil futures in Shanghai fell heavily, sliding to 3,691 and 3,611 yuan, down 1.2% and 1.7% respectively from the Friday’s day session close.

According to Reuters, Jiangsu Shagang Group, China’s largest private steel producer, lowered spot prices of some steel products by 50 yuan a tonne for June delivery, placing downward pressure on futures prices.

As seen in the table below, there was little movement on those levels in overnight trade on Monday.

SHFE Hot Rolled Coil ¥3,604 , -1.10%
SHFE Rebar ¥3,674 , -1.26%
DCE Iron Ore ¥655.00 , 0.08%
DCE Coking Coal ¥1,356.50 , 0.00%
DCE Coke ¥2,116.50 , -1.42%

There was little reaction in futures to news that China will increased tariffs on around $US60 billion worth of US imports from June 1, a retaliatory move following an increase in US tariffs on Chinese imports last Friday.

Trade in Chinese futures will resume at 11am AEST.

While futures provided no clear signal on which direction physical markets will move on Tuesday, over the longer term, strategists at Westpac Bank believe recent price strength will be sustained in the months ahead, underpinned by the rollout of further Chinese stimulus measures and supply disruptions from Brazil.

“We have lifted our year average iron ore forecast for 2019 from $84 a tonne to $91 a tonne with prices holding $95 a tonne to the end September,” Westpac said.

Looking further ahead, Westpac sees the benchmark price easing back to $90 by the end of this year and $65 by the end of 2020.

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