Iron ore remains under pressure

Photo: Getty Images.
  • Iron ore spot markets fell across the board on Monday, more than reversing the gains achieved on Friday.
  • The steep declines followed data showing Chinese iron ore and rebar inventories continued to fall last week.
  • China will release a raft of major economic data releases today, headlined by Q1 GDP.

Iron ore markets fell heavily on Monday, continuing the choppy price action seen throughout April.

According to Metal Bulletin, the spot price for benchmark 62% fines tumbled 1.6% to $63.93 a tonne, logging its third decline in the past four sessions.

However, despite the recent weakness, it remains firmly entrenched in the small trading range its been stuck in since late March.

The move in the benchmark was mirrored across the grades.

Ore with 65% Fe content slid 1.5% to $81 a tonne. Lower grades fared a little better with 58% fines falling by 0.7% to $37.59 a tonne.

The relative outperformance in lower grades may have reflected renewed weakness in Chinese steel prices during the session.

Rebar futures in Shanghai closed down 1.9% at 3,357 yuan, well below Friday’s night session close of 3,438 yuan a tonne.

Lower profit margins at Chinese steel producers tend to encourage mills to seek out cheaper, less-efficient lower iron ore grades.

The sharp decline in steel prices was mirrored by iron ore futures traded separately in Dalian with the September 2018 contract falling 2.5% to 438.5 yuan a tonne.

As opposed to trends seen in the past, traders paid scant attention to news that Chinese iron ore and rebar inventories continued to fall last week, hinting that demand is now improving after a slow start to the spring construction season.

According to Mysteel Consultancy, iron ore inventories held at Chinese ports fell by 731,600 tonnes to 160.4 million tonnes last week, edging away from the record highs struck earlier in the year.

Rebar inventories also fell during the week, dropping by 521,600 tonnes to 8.68 million tonnes.

While it doesn’t explain the movements in futures on Monday, the losses followed news that China’s Securities Regulatory Commission (CSRC) will allow foreigners to trade in domestic iron ore futures markets starting from May 4.

Providing few clues as to whether the weakness in spot markets will persist on Tuesday, Chinese futures finished mixed in overnight trade with rebar contracts pushing higher while iron ore continued to fall.

SHFE Rebar ¥3,363 , -1.18%
DCE Iron Ore ¥435.50 , -2.35%

Trade in Chinese commodity futures will resume at 11am AEST, one hour before the government will release a swathe of major economic data, including Q1 GDP.

From a year earlier, GDP is tipped to have grown by 6.8%, unchanged from the pace reported in the final three months of 2017. The GDP figure has either printed in line or 0.1 percentage points above market expectation every quarter since mid-2015.

For commodity traders, there’s likely to be more interest on the monthly data readings, particularly urban fixed asset investment and industrial output.

Compared to the first quarter of 2017, urban fixed asset investment is tipped to have grown 7.6%, down from the 7.9% annual lift seen in the first two months of the year.

Industrial output is expected to grow by 6.2% from a year earlier, down from 7.2% in the 12 months to February.

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