Iron ore prices continue to grind higher as Chinese stockpiles fall

Phillippe Lopez/AFP/Getty Images
  • Mid and higher iron ore grades rose to fresh multi-year highs on Tuesday. Lower grades went backwards.
  • Chinese iron ore port inventories have fallen to the lowest level since October 2017. The Commonwealth Bank says this has helped to underpin price gains recently.
  • Chinese steel and bulk commodity futures continued to rally on Tuesday, pointing to further buoyancy in physical markets on Wednesday.

Mid and higher iron ore grades continued to climb on Tuesday, closing at fresh multi-year highs.

The spot price for benchmark 62% fines rose 0.6% to $102.30 a tonne, according to Metal Bulletin, leaving it at levels not seen since May 2014.

Higher grades also rallied with 65% fines adding 0.9%, settling at $116.70 a tonne. That was the highest level since Metal Bulletin first produced price data on the grade at the start of 2016.

Both 62% and 65% fines have risen in each of the past four sessions, lifting 8.4% and 6.7% respectively.

While mid and higher grades continued to push higher, lower grades went backwards with 58% fines sliding 0.9% to $84.38 a tonne.

Despite the price divergence seen on Tuesday, all three grades have surged since late November last year. 58% fines has led the charge higher, soaring by 112%. The benchmark has rallied nearly 60% with 65% fines up a smaller 44%.

Vivek Dhar, Mining and Energy Commodities Analyst at the Commonwealth Bank, says that while there have been a number of factors that have helped to drive prices higher, falling Chinese iron ore port inventories has been the main factor underpinning recent gains.

“The fall in China’s iron ore port stockpiles since early April has been a major reason for the uptick in iron ore prices in recent weeks,” Dhar wrote in a note.

“China’s port stocks are an important indicator of surplus and deficit concerns in iron ore markets.”

According to data from Mysteel consultancy, Chinese iron ore port inventories fell to 131.7 million tonnes last week, the lowest level since October 2017.

Thomson ReutersChina Iron Ore Port Inventories (Mysteel)

Dhar thinks inventory levels will continue to decline in the period ahead, helping to keep iron ore prices higher for longer.

“We see scope for China’s iron ore port stockpiles to fall further, with 120 million tonnes likely and 110 million tonnes a distinct possibility,” Dhar wrote, adding “demand side factors have also played an important role in helping iron ore prices higher”.

Dhar says Chinese steel mill margins, while lower than earlier in the year, have “held up remarkably well” despite rising iron ore prices, encouraging firms to ramp up output at a time when Chinese steel steel demand is strong.

“Chinese policymakers plan to spend 2.15 trillion yuan on infrastructure this year, up from 800 billion yuan in 2018,” he said.

“Demand hopes are also translating through to higher steel volumes … [with] crude steel output lifting to a record high in April.”

Pointing to the likelihood of further buoyancy in physical iron ore markets on Wednesday, Dalian futures continued to grind higher in overnight trade on Tuesday with the most actively traded September 2019 contract closing at a fresh record high of 717.5 yuan.

The contract finished at 699.5 yuan on Monday evening.

SHFE Hot Rolled Coil ¥3,740 , 1.25%
SHFE Rebar ¥3,891 , 1.20%
DCE Iron Ore ¥717.50 , 1.92%
DCE Coking Coal ¥1,387.00 , -0.36%
DCE Coke ¥2,305.00 , 3.83%

Steel futures in Shanghai also rallied with rebar and hot rolled coil contract surging to 3,891 and 3,740 yuan respectively, up from 3,818 and 3,666 yuan on Monday evening.

Coke and coking coal contracts also surged, jumping to 2,305 and 1,387 yuan respectively.

Trade in Chinese commodity futures will resume at 11am AEST.

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