Iron ore bounces, and futures suggest there's more upside to come

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Iron ore spot markets rose for the first time in six sessions on Wednesday, bolstered by a bounce in Chinese futures earlier in the session.

And with futures posting solid gains again overnight, it looks like the rebound may continue today.

According to Metal Bulletin, the spot price for benchmark 62% fines jumped 1.4% to $59.35 a tonne, snapping a five session losing streak that saw it plumb fresh four-month lows.

Higher grades also rose with ore with 65% Fe content rising by a smaller 0.9% to $80.20 a tonne.

However, the recovery in mid and higher grades did not extend to lower grades which sank to fresh multi-year lows.

The price for 58% fines dropped 1.4% to $34.19 a tonne, leaving it at the lowest level since December 17, 2015. It now sits just 70 cents above its record low.

Ahead of the full implementation of steel production cuts in China in mid-November, done in an attempt to improve air quality in northern provinces, higher grade ores have outperformed lower grades due to their improved efficiency.

The recovery in higher grades followed a bounce in Chinese futures earlier in the session, even if the gains were slowly whittled away in the second half of trade.

Iron ore futures in Dalian finished at 429.5 yuan, a small increase on Tuesday’s night session close. The gains came despite a reversal in rebar futures which finished at 3,563 yuan, below the previous close.

However, as seen in the scoreboard below, both iron ore and rebar contracts pushed higher during Wednesday’s night session.

SHFE Rebar ¥3,640 , 0.69%
DCE Iron Ore ¥442.00 , 2.20%
DCE Coking Coal ¥1,131.50 , 4.96%
DCE Coke ¥1,745.00 , 2.92%

At 442 yuan, the January 2018 iron ore contract now sits at a four-day high, and well off the low of 421 yuan struck earlier this week.

“The weakness in prices over the past few days has now enticed some traders back into the market,” analysts at ANZ said on Thursday.

Combined with a bounce in rebar, coke and coking coal futures overnight, the strength points to the likelihood that spot markets will push higher should futures hold or build upon those gains today.

Trade will resume at midday AEDT.

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