Supply concerns send iron ore prices sharply higher

Richard Lautens/Toronto Star via Getty Images
  • Iron ore prices rose across the board on Monday, supported by renewed concern over supply disruptions in Brazil.
  • The benchmark price hit a one-month high, seeing the price premium demanded for 65% fines slide to the lowest level in more than two years.
  • Prices for 58% fines hit the highest level since September 2014.
  • Dalian iron ore futures rallied during Monday’s night session, helped by strength in steel futures and news of further mine suspensions in Brazil.

Iron ore prices rocketed higher on Monday, supported by renewed concern over supply disruptions in Brazil, a major global producer.

According to Metal Bulletin, the spot price for benchmark 62% fines surged 2% to $88.26 a tonne, leaving it at the highest level in a month.

65% fines rose by a smaller 0.5%, settling at $98 a tonne.

With the benchmark price lifting more than 65% fines, the price premium demanded for higher grade ore narrowed to levels not seen in more than two years.

Lower grade ore was relative laggard during the session with 58% fines lifting by 0.2% to $70.49 a tonne. Despite being only small in scale, the increase left the price for 58 fines at the highest level since September 2014.

The lift in spot markets was mirrored in Chinese iron ore futures on Monday.

According to pricing from the Dalian Commodities Exchange, the May 2019 contract rose to as high as 645 yuan a tonne, just off the record high set in early February this year.

It eventually finished at 632.5 yuan, up from 628 yuan on Friday evening.

The strength across both spot and futures markets coincided with news of further mine suspensions in Brazil, creating renewed uncertainty over the outlook for seaborne supply.

Over the weekend, Brazilian iron ore miner Vale announced that it would cut production at an iron ore mine in the state of Minas Gerais. It also said that it would suspend operations at a separate facility, coming on top of temporary closures already announced following a deadly mining accident in late January.

“(The new closures) were not expected,” analysts from Jefferies said in a note seen by Reuters.

“It takes total expected gross capacity closures from Vale to a run rate of 83 million tonnes per year, which equates to a significant 5.7% of the seaborne iron ore market.”

While iron ore futures were hot, other steel and bulk commodity contracts traded in China were not on Monday.

Rebar and hot-rolled coil futures in Shanghai finished at 3,781 and 3,697 yuan respectively, almost unchanged from Friday’s night session close.

Completing the mixed price performance, coking coal and coke contracts went backwards during the session, sliding from 1,236 and 1,994 yuan respectively on Friday night to 1,231 and 1,968 yuan.

However, as seen in the scoreboard, all five contracts rose strongly during Monday’s night session.

SHFE Hot Rolled Coil ¥3,727 , 0.76%
SHFE Rebar ¥3,820 , 1.17%
DCE Iron Ore ¥643.00 , 1.34%
DCE Coking Coal ¥1,245.50 , 0.93%
DCE Coke ¥1,981.50 , -0.18%

The strength in iron futures may reflect that a court in Brazil has ordered Vale to suspend operations at two more dam facilities until it can prove the structures are stable.

That news, along with the move in broader futures markets, points to a strong start for physical markets on Tuesday.

Trade in Chinese commodity futures will resume at midday AEDT.

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