- Iron ore prices tumbled across the board on Thursday.
- Dalian iron ore futures continue to slide following a fee hike announced late Tuesday. Volumes were more than 30% lower On Thursday than the session earlier.
- China will release its official manufacturing and non-manufacturing PMI report for May on Friday.
- ANZ expects the benchmark iron ore price will remain above $85 a tonne for the remainder of 2019.
Iron ore prices fell heavily across the board on Thursday, led by losses in higher grades.
According to Metal Bulletin, the spot price for benchmark 62% iron ore fines slumped 2.2% to $103.87 a tonne, leaving it down 4.4% from the five-year peak of $108.62 struck earlier in the week.
Elsewhere, the price for 65% fines tumbled 1.8% to $119 a tonne, the lowest level in a week.
58% fines fell by a smaller 0.7% to $90.33 a tonne, narrowing its price discount to mid and higher grades.
After closing at 740 yuan on Wednesday evening, well below the record peak of 774.5 yuan set a day earlier, Dalian iron ore futures continued to slide, finishing Thursday’s session at 737 yuan a tonne. The September 2019 contract recovered after falling as low as 730 yuan in early trade.
The steep reversal in Chinese iron ore futures followed a decision from the Dalian Commodities Exchange (DCE) to lift transaction fees, a move likely designed to discourage speculative activity.
In a statement released last week, the DCE asked its members to trade “rationally” following large gyrations in several futures contracts, including iron ore.
According to Reuters, citing data from the DCE, traded volumes were 32% lower on Thursday compared to a session earlier.
Along with a likely decline in speculative capital flows, iron ore markets may have been impacted by further declines in Chinese steel futures during the session.
The October rebar and hot-rolled coil contracts traded on the Shanghai Futures Exchange slipped to 3,777 and 3,640 yuan respectively, down from 3,812 and 3,663 yuan on Wednesday evening.
Often, falling steel prices results in lower steel mill profit margins, discouraging output and the use of more expensive, higher quality iron ore grades.
Coke futures also fell heavily, dropping from 2,236.5 to 2,205 yuan, although coking coal futures managed to buck the broader trend, closing nearly unchanged at 1,396.5 yuan.
There was little change on those level in overnight trade on Thursday.
SHFE Hot Rolled Coil ¥3,645 , -0.36%
SHFE Rebar ¥3,780 , -0.68%
DCE Iron Ore ¥735.00 , -0.54%
DCE Coking Coal ¥1,400.00 , -0.11%
DCE Coke ¥2,205.50 , -0.94%
Chinese commodity futures will reopen at 11am AEST, the same time that Chinese manufacturing and non-manufacturing PMIs for May will be released.
The manufacturing PMI will likely receive most attention, tipped to slide to 49.9 from 50.1 in April. A reading below 50 indicates that activity levels weakened from a month earlier. The distance from 50 indicates how fast the deterioration was.
While that report may dictate short-term sentiment towards the bulk commodity complex, longer-term, commodity strategists at ANZ think iron ore prices will start to move lower in the second half of the year.
However, it doesn’t expect the decline will be substantial, leaving prices at still-elevated levels.
“The likelihood of supply-side issues persisting longer than expected are building in the iron ore market,” said Daniel Hynes, senior commodity strategist at ANZ, in reference to supply disruptions caused by a major accident at a mine operated by Brazil’s Vale in late January this year.
“We now expect the tightness to linger well into 2020 … with prices now expected to remain above $85 a tonne in 2019.”