- Major iron ore grades soared by more than 3% on Monday, hitting levels not seen since early 2014.
- Chinese iron ore port inventories slumped again last week, falling to the lowest level since early 2017.
- Chinese iron ore futures briefly hit limit-up 6% on Monday, meaning the only thing preventing further gains was that market rules prevented it.
- Dalian iron ore closed at the highest level on record on Monday evening. Some put the bullish price action down to speculative buying rather than fundamentals.
Iron ore prices continued to surge on Monday, picking up where they left off last week.
The latest buying frenzy coincided with news that Chinese iron ore port inventories fell heavily again last week. Global crude steel output also jumped to the highest level on record in April, helping to underpin demand for raw materials.
According to Metal Bulletin, the spot price for benchmark 62% iron ore fines jumped another 3.1% to $108.62 a tonne, leaving it at the highest level since late April 2014.
The benchmark has now surged 70% from November 26 last year.
Even larger gains were seen across lower and higher grades on Monday.
The price for 58% fines soared 4% to $90.46 a tonne, extending its rally from late November last year to a jaw-dropping 128%. It now sits at levels not seen since early May 2014.
65% fines also rallied, lifting 3.4% to $123.4 a tonne. That’s the highest level since Metal Bulletin first produced data on the grade at the start of 2016, extending its rally over the past six months to over 50%.
The bullish price action in spot markets was mirrored in Chinese iron ore futures during the session.
According to data from the Dalian Commodities Exchange, the September 2019 contract closed at 761 yuan, up from 749 yuan on Friday evening.
It briefly soared to as high as 771 yuan, leaving it “limit-up” 6% for the session. That means the only thing preventing further gains at that point in session was that market ruled prevented it.
The latest burst of buying followed another substantial draw in Chinese iron ore port inventories last week.
According to data from Mysteel Consultancy, inventories have tumbled from 148.9 million tonnes in mid-April to 127.8 million tonnes, leaving them at the lowest level since February 2017.
Vivek Dhar, mining and energy commodities analyst at the Commonwealth Bank, described the decline in port inventories as a “major worry” in a note released on Monday.
“The fact that benchmark prices are already [above $100] a tonne with port stockpiles around 128 million tonnes means that shortage concerns are likely to intensify as we continue to see port stockpiles fall,” he said.
“Keep in mind that around 120 million tonnes is a ‘safe’ level for port stockpiles and price are surging even before we’ve touched that level.”
The decline in Chinese inventories partially reflects the impact of disruptions to Brazilian iron ore seaborne supply, along with record steel production in China.
According to data released by the World Steel Association (worldsteel) on Monday, global crude steel output surged to a record high of 156.7 million tonnes in April, leaving it up 6.4% on the same month a year earlier.
That increase was entirely driven by Chinese steel output — the largest producer globally — which soared to a record 85 million tonnes, up 12.7% from a year earlier.
Over the same period, output elsewhere in the world declined 0.2%.
The gains in iron ore spot and futures markets contrasted to weakness across Chinese steel and coal futures to start the new trading week.
Rebar and hot-rolled coil futures in Shanghai slipped to 3,842 and 3,666 yuan respectively, down from 3,874 and 3,727 yuan on Friday evening.
Coking coal and coke contracts traded in Dalian also softened, finishing trade at 1,388 and 2,259 yuan respectively, below the 1,401 and 2,305 yuan level where they closed last week.
While all contracts bar iron ore fell earlier in the session, there were universal gains in overnight trade on Monday.
SHFE Hot Rolled Coil ¥3,688 , -0.59%
SHFE Rebar ¥3,859 , -0.44%
DCE Iron Ore ¥767.50 , 1.86%
DCE Coking Coal ¥1,399.50 , -0.36%
DCE Coke ¥2,273.50 , -1.52%
Of note, Dalian iron ore finished at another record closing high of 767.5 yuan, continuing to run ahead of the move in other steel and bulk commodity contracts.
Some believe that outperformance reflects the impact of speculative buying in iron ore contracts.
“Some big funds are trying to push iron ore prices further up,” a Shanghai-based trader told Reuters. “Fundamentals do not support the current price levels.”
Trade in Chinese commodity futures will resume at 11am AEST.
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