Iron ore suffers its largest fall in months

David Rogers/Getty Images
  • Higher iron ore grades fell heavily on Tuesday, pulling back from multi-year highs set a session earlier.
  • In contrast, lower grades continued to rally, surging to fresh five-year highs.
  • Chinese iron ore futures have reversed hard over the past 24 hours, having surged to record highs to start the week.
  • The reversal continued in overnight trade on Tuesday, possibly reflecting reduced concerns about further supply disruptions in Brazil.

You might have forgotten given the breakneck rally seen over the past six months, but iron ore prices can actually go both up and down.

That point was underlined on Tuesday with steep falls recorded in higher iron grades, pulling back from multi-year highs set a session earlier.

And with Chinese futures down heavily in overnight trade on Tuesday, there’s a chance the losing streak may continue into Wednesday.

According to Metal Bulletin, the spot price for benchmark 62% iron ore fines slumped 2.3% to $106.11 a tonne, its largest one-day percentage decline in over two months.

The benchmark previously closed at the highest level since April 2014 on Monday, having rallied 70% since late November last year.

Higher grades also succumbed to gravity with 65% fines skidding 1.5% to $121.60 a tonne, pulling back from the multi-year high hit a session earlier.

In contrast to the performance from mid and higher grades, the price for 58% fines continued to rally, lifting by another 1% to a fresh five-year high of $91.32 a tonne.

Perhaps contributing to the weakness in higher grades on Tuesday, Chinese steel futures softened during the session.

The October 2019 rebar and hot-rolled coil contracts in Shanghai slipped to 3,845 and 3,669 yuan respectively, down from 3,859 and 3,688 yuan on Monday evening.

Weaker steel prices pressured profit margins at producers, potentially limiting output levels hence demand for raw materials.

Mirroring the price action in steel contracts, iron ore futures also slipped, finishing trade at 756.5 yuan, down from Monday’s night session close of 767.5 yuan. It briefly rallied to 774.5 yuan earlier in the session, the highest level on record.

Coking coal and coke futures also fell, finishing at 1,383 and 2,237 yuan respectively. They closed at 1,399.5 and 2,273.5 yuan on Monday evening.

The earlier reversal continued in overnight trade on Tuesday.

SHFE Hot Rolled Coil ¥3,656 , -0.38%
SHFE Rebar ¥3,824 , -0.52%
DCE Iron Ore ¥742.00 , -2.37%
DCE Coking Coal ¥1,381.00 , -0.65%
DCE Coke ¥2,233.00 , -0.65%

As seen in the scoreboard above, iron ore futures were hit particularly hard, coinciding with news that further supply disruptions in Brazil may be avoided.

According to Reuters, citing a statement from Brazilian iron ore miner, an unstable embankment at the group’s Gongo Soco mining pit in Brazil has a “lower risk than previously thought of collapsing in a way that would destabilise the nearby Sul Superior dam”.

Last week, an environmental official for the Brazilian state of Minas Gerais estimated that there was a 10-15% chance the Sul Superior dam would lose integrity due to tremors from the expected landslide in the adjacent mining pit.

A deadly mining accident in late January at a Brazilian iron ore facility operated by Vale has led to temporary closures of other iron ore mines in the country, limiting supply for seaborne markets.

Another mining accident would likely increase the risk that these closures could be extended or become permanent.

Trade in Chinese commodity futures will resume at 11am AEST.

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