Iron ore prices surge to multi-year highs

ROBYN BECK/AFP/Getty Images
  • Iron ore prices are going ballistic, rallying hard for a third consecutive session on Thursday.
  • The surge reflects mounting concerns about supply disruptions to iron ore seaborne markets.
  • Since late November, the price for 58% iron ore fines has risen by over 50%.
  • China will release a string of purchasing managers indexes (PMIs) for January later today.

Iron ore spot markets surged for a third consecutive session on Thursday, underpinned by growing concern about supply disruptions to seaborne markets.

According to Metal Bulletin, the price for benchmark 62% fines jumped 4.9% to $82.53 a tonne, leaving it at the highest level since March 2017.

The gains in the benchmark were actually exceeded by those seen in lower and higher grades during the session.

The price for 65% Brazilian iron ore fines rose 5.9% to $97.60 a tonne, a three-month high.

For the second session in a row, 58% fines topped the daily leader board with the price settling at $60.44 a tonne, an increase of 6.8% following a 9.2% gain on Wednesday. It too sits at the highest level since March 2017. Its price discount to the benchmark also narrowed to the lowest level in over two years.

As seen in the chart below, all three grades have soared this week, adding to already impressive gains in December and January.

This week alone, the price for 58%, 62% and 65% fines have jumped 13.3%, 10.5% and 9.5% respectively, extending the gains from November 26 last year to 52.2%, 28.5% and 20.5%.

The surge in spot markets was driven by continued concern over supply disruptions to seaborne markets.

In response to the collapse of a tailings dam at its Feijao iron ore mine last weekend, Brazilian miner Vale announced that it will decommission all of its upstream tailings dams over the next three years.

“The decommissioning process is expected to sideline around 40 million tonnes per annum (Mtpa) of iron ore, or around 2.5% of the seaborne trade, but the company will offset any lost production by increasing output elsewhere in Brazil,” said Vivek Dhar, Mining and Energy Commodities Analyst at the Commonwealth Bank.

“Vale’s announcement is plausible — the company has signalled previously its goal to get to around 400Mtpa of iron ore production, up from around 390Mtpa in 2018, and have around 50Mtpa of spare capacity.

“The reality, though, is that Vale’s plan to boost production from existing mines may face resistance from regulators, adding delays to Vale’s production plans.”

In his opinion, Dhar says the benchmark iron ore prices could stay above $80 a tonne until Vale’s production outlook becomes more certain.

With Chinese steel mill profit margins being squeezed by higher input costs, that may also benefit lower iron ore grades in the interim.

Like spot markets, Chinese iron ore futures in Dalian continued to soar on Thursday, briefly trading limit-up during the session before easing into the close. The May 2019 contract eventually closed the day session at 587 yuan, near the highest level in 17 months.

As seen in the scoreboard below, most of those gains were retained in overnight trade.

SHFE Hot Rolled Coil ¥3,585 , -1.05%
SHFE Rebar ¥3,683 , -1.02%
DCE Iron Ore ¥582.00 , 0.69%
DCE Coking Coal ¥1,197.50 , -1.56%
DCE Coke ¥2,027.00 , -0.90%

Like Dalian iron ore, rebar and hot-rolled coil futures in Shanghai eased lower, finishing marginally below Wednesday’s night session close. Coke and coking coal contracts in Dalian were also softer from 24 hours earlier.

Trade in Chinese commodity futures will resume at midday AEDT, the same time that the Chinese government will release its manufacturing, non-manufacturing and steel industry purchasing managers indexes (PMIs) for January.

Markets are looking for the manufacturing PMI to print at 49.3, signalling a slightly faster pace of deterioration in activity levels relative to December.

In the past, these PMI reports have been highly influential on both iron ore spot and futures markets.

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