Iron ore markets have quietened down after a hectic few weeks

Photo by Brian Carlin/Team Vestas Wind via Getty Images

Iron ore spot markets edged higher on Wednesday, recovering some of the ground lost in the previous session.

According to Metal Bulletin, the price for benchmark 62% fines rose by 0.08% to $63.28 a tonne. Other grades out performed in comparison. The price for 58% fines added 0.5% to $44.29 a tonne, while Brazilian ore with 65% Fe content gained 0.63% to $80.50 a tonne.

Metal Bulletin said the slowdown coincided with a drop in trading activity across Chinese steel markets.

“Spot rebar prices were flat amid thin buying interest,” the group said. “Buyers cut down on procurement due to the current high prices and on anticipating a drop in demand due to the hot summer weather.”

The group said that market participants expect trade across steel markets to remain thin in the days ahead.

In overnight trade Chinese futures continued to soften, suggesting that the modest uptick in spot markets on Wednesday may not last.

Here’s the final scoreboard.

SHFE Rebar ¥3,402 , -0.58%
DCE Iron Ore ¥467.00 , -1.16%
DCE Coking Coal ¥1,119.00 , -0.80%
DCE Coke ¥1,767.00 , -0.56%

Both rebar and iron ore contracts finished well off the highs seen during Wednesday’s day session, while the losses across coking coal and coke were smaller in scale.

Should futures hold or extend their losses today, it hints that the choppy, directionless trade of recent days may continue on Thursday, this time to the downside.

Trade in Chinese futures will resume at 11am AEST.

While spot markets appear to be consolidating after a strong rally from mid-June, Matthew Hope, equity research analyst at Credit Suisse, believes there’s likely to be further gains to come in the months ahead.

“Despite the run-up in the iron ore price it remains below our Q3 price forecast of $70 a tonne,” he said in a note released earlier this week, adding that prices were likely to be supported given it is a seasonally a strong period for steel production and consumption.

Hope said that there were additional factors to consider that could underpin iron ore demand, and as a result prices, even more than usual.

“The steel industry in Hebei, Henan, Shanxi and Shandong is expected to cut output by 50%,” says Hope. “If this policy is enforced — and smog is a high priority issue — then steel output may fall by 35-45 million tonnes over the three months.”

Hope said that high steel prices could lead to overproduction as mills build inventory levels ahead of environmental curbs.

“If this is so, Q3 iron ore buying could be extra strong,” he said.

CHART: Rising margins at Chinese steel mills helps explain why iron ore is in a bull market

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