Iron ore prices rally again

Mark Kolbe/Getty Images
  • Iron ore prices continue to rally, driven by heightened concerns about supply disruptions caused by a mining accident in Brazil.
  • Lower grades jumped by nearly 10% on Tuesday, logging the largest one-day gain in over two years. Prices now sit at the highest level since March 2017.
  • Dalian iron ore futures soared again in overnight trade on Tuesday, pointing to the potential for further gains in spot markets on Wednesday.

Iron ore prices continued to climb on Tuesday, led on this occasion by lower grades.

According to Metal Bulletin, the spot price for benchmark 62% fines rose by a further 0.7% to $78.69 a tonne, adding to the enormous 4.7% surge seen on Monday.

It now sits at the highest level since early March last year having rallied 22% since November 26.

From a technical perspective, iron ore is back in a bull market.

Strength was also seen in higher and lower grades on Tuesday.

The price for 65% Brazilian fines added 0.7% to settle at $92.20 a tonne, leaving it at the highest level in over two months. It has rallied 14% since late November last year.

In contrast to the performance seen on Monday, lower grade ore stormed higher on Tuesday with 58% fines soaring 9.2% to $56.59 a tonne. It was the largest one-day percentage gain since December 1, 2016, leaving the price at the highest level since March 2017.

58% fines have now rallied 42% from late November, narrowing its discount to the benchmark to the smallest level in two years.

The broad-based strength was driven by heightened concern over supply disruptions following another deadly mining accident in Brazil over the weekend.

“Vale’s tailings dam at its Feijao iron ore mine collapsed over the weekend, leaving 60 people dead and 292 missing,” said Vivek Dhar, Mining and Energy Commodities Analyst at the Commonwealth Bank.

“We expect iron ore prices to rise sharply in the short term before eventually easing.

“In the scenario that Vale’s mining licences are suspended, we could see prices remain supported for a prolonged period.”

Reuters reports that two engineers who worked at the burst tailings dam were arrested on Tuesday, according to Sao Paulo state prosecutors.

Hinting that the move in spot markets may continue on Wednesday, Chinese iron ore futures soared in overnight trade, finishing at the highest level in 16 months.

SHFE Hot Rolled Coil ¥3,595 , 0.45%
SHFE Rebar ¥3,690 , 0.46%
DCE Iron Ore ¥579.00 , 4.14%
DCE Coking Coal ¥1,216.00 , 0.29%
DCE Coke ¥2,042.50 , 0.71%

The most actively traded May 2019 iron ore contract in Dalian finished at 579 yuan, up from 553.5 yuan on Monday evening.

Further helping sentiment, steel contracts traded separately in Shanghai also rose on Tuesday evening. Rebar and hot-rolled coil futures finished at 3,690 and 3,595 yuan respectively, higher than Monday’s night session close of 3,656 and 3,568 yuan.

Coking coal futures also edged higher, although coke contracts bucked the broader trend.

Trade in Chinese commodity futures will resume at midday AEDT.

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