Lower grade iron ore surges into a bull market

  • Iron ore prices rose again on Wednesday, led by lower grades.
  • The price of 58% fines has surged 23.4% since mid-July, leaving it in a technical bull market.
  • Chinese futures were also strong on Wednesday — that theme continued during the overnight session.

Iron ore prices continue to rip higher, closing at fresh multi-month highs on Wednesday.

According to Metal Bulletin, the spot price for benchmark 62% fines increased by a further 0.6% to $74.73 a tonne, leaving it at the highest level since early March.

It has now rallied 18.4% from the lows in early July this year, including 7.9% since the end of Golden Week holidays earlier this month.

As such, it’s quickly closing in on becoming a bull market.

While the benchmark price continued to rally, lower grade ores have been rallying even harder in recent sessions with the price for 58% fines surging 3.3% to $45.27 a tonne, leaving it at the highest level since September last year.

It’s also rallied 23.4% since the middle of July, more than the 20% threshold defined as a technical bull market.

An easing of industrial restrictions to help improve air quality over winter in northern Chinese provinces may explain the renewed demand for lower grade ores in recent weeks.

Completing a hat-trick of gains, higher grade ores also pushed higher with the price for 65% Brazilian fines lifting 0.5% to $98.20 a tonne.

The across-the-board gains coincided with renewed buying in Chinese steel futures during the session.

Rebar futures on the Shanghai Futures Exchange finished the session at 4,190 yuan, up from Tuesday’s night session close of 4,143 yuan.

According to Reuters, the value of fixed-asset investment projects approved in the third quarter more than quadrupled from the prior three months, indicating the government is rolling out measures to prop up the slowing economy.

The state planner approved 45 projects worth 437.4 billion yuan in July-September, accounting for nearly two-thirds of the value of approvals so far this year, Reuters said.

The strength in steel contracts flowed through to iron ore futures in Dalian with the January 2019 contract finishing at 536.5 yuan, up substantially from 522.5 yuan on Tuesday evening.

According Mysteel Consultancy, 20 million tonnes of iron imports entered China last week, down 3.32 million tonnes from the prior week.

Coking coal and coke futures also surged, ending trade at 1,395 yuan and 2,435 yuan respectively, up from Tuesday’s night session close of 1,379 yuan and 2,384.5 yuan.

Temporary supply disruptions and speculation over environmental restrictions were cited as catalysts behind the moves.

As seen in the scoreboard below, most of those gains were sustained in overnight trade on Wednesday.

SHFE Rebar ¥4,186 , 0.70%
DCE Iron Ore ¥534.50 , 1.33%
DCE Coking Coal ¥1,390.50 , 0.51%
DCE Coke ¥2,439.50 , 1.48%

There was little reaction to news that global crude steel output rose by 4.4% to 152 million tonnes in the year to September, according to data released by the World Steel Association.

Chinese commodity futures will resume trade at midday AEDT.

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