Iron ore prices fall across the board

  • Iron ore spot markets fell across the board on Friday, snapping a three-day winning streak in the process.
  • Activity levels across China’s manufacturing sector stalled last month. The improvement in China’s non-manufacturing sectors also slowed.
  • The temporary trade truce agreed by the US and China last weekend may reduce the probability of China ramping up infrastructure stimulus spending in order to support the economy.
  • The Caixin-IHS Markit China manufacturing PMI report for November will be released today. This typically attracts more interest than the official PMI release.

Iron ore spot prices fall across the board on Friday, weighed down by softer steel prices and stalling activity levels across China’s manufacturing sector.

According to Metal Bulletin, the price for benchmark 62% fines slipped 0.8% to $65.95 a tonne, registering its first decline in three trading sessions.

Over the week the benchmark fell by 6%, largely reflecting a mammoth 8.4% drop on Monday.

After jumping a session earlier, the price for 58% fines gave back much of those gains on Friday, tumbling 2% to $40.59 a tonne.

The price for 65% Brazilian fines fell by a smaller 0.1% to $82.30 a tonne, adding to the 0.6% decline seen on Thursday.

The weakness in spot markets followed continued weakness in Chinese steel futures traded in Shanghai. It also coincided with the release of the Chinese government’s manufacturing PMI report for November, revealing that activity levels failed to improve for the first time in over two years during the month.

Activity levels also improved at a slower pace across China’s non-manufacturing sectors, painting a bleak picture on the health of the economy in late 2018.

While that combination was enough to weigh on sentiment earlier in the session, that was not seen in late trade with Chinese steel and bulk commodity futures reversing losses to close firmly in the black on Friday evening.

Here’s the closing scoreboard.

SHFE Hot Rolled Coil ¥3,474 , 0.75%
SHFE Rebar ¥3,607 , 0.45%
DCE Iron Ore ¥487.00 , 1.67%
DCE Coking Coal ¥1,362.50 , 2.21%
DCE Coke ¥2,187.50 , 3.06%

Both hot-rolled coil and rebar contracts rose modestly from Thursday’s night session close.

There were larger gains for bulk commodity contracts in Dalian with iron ore, coking coal and coke futures finishing the session at 487, 1,362.5 and 2,187.5 yuan respectively, up from 479.5, 1,337 and 2,128 yuan on Thursday evening.

The reversal in futures markets came before news that a temporary trade truce had been agreed between Donald Trump and Xi Jinping on the sidelines of the G20 summit in Argentina.

While trade negotiations will continue for another 90 days, seeing both sides agree to not introduce or lift existing tariffs during this period, whether this will be enough to support buying in futures markets on Monday is debatable, particularly as the trade truce reduces the near-term likelihood of a broader pickup in infrastructure stimulus spending in China.

Trade in Chinese commodity futures will resume at midday AEDT, 45 minutes before the release of the Caixin-IHS Markit China manufacturing PMI report for November.

In the past, this report has tended to attract more attention in financial markets than the government’s official PMI release.

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