Iron ore is under pressure as Chinese inventories hit record highs

Jie Zhao/Corbis via Getty ImagesIron ore in China.
  • Iron ore spot and futures markets came under selling pressure on Monday.
  • Chinese iron ore port inventories hit the highest level at the end of May. Chinese steel futures also fell after a strong rally last week.
  • Chinese commodity futures finished mixed in overnight trade, providing few clues as to what direction spot markets may move today.

Iron ore markets are under pressure, undermined by news that Chinese port inventories swelled to the highest level on record last week.

According to Metal Bulletin, the spot price for benchmark 62% fines dipped 1% to $65.47 a tonne on Monday, giving back much of the 1.3% increase recorded on Friday.

As seen in the chart below, the price action has been particularly choppy recently, moving in the opposite direction to the prior day in each of the past five sessions.

Small losses were also recorded across lower and higher grades on Monday.

The price of 58% fines and 65% fines both shed a little over 0.1% apiece, settling at $38.51 and $86.30 a tonne respectively.

The modest losses followed news that Chinese iron ore port inventories rose to the highest level on record last week.

According to data from Steelhome consultancy, inventories rose by 1.4 million tonnes to 161.98 million tonnes, surpassing the previous record peak of 161.68 million tonnes set in mid-March.

A Shanghai-based trader told Reuters that China’s Hebei and Jiangsu provinces have imposed industrial production restrictions, including on steel mills, to fight smog, putting upward on inventory levels.

Weakness in Chinese rebar futures may have also contributed to the selling pressure with the October 2018 contract in Shanghai finishing trade at 3719 yuan, below Friday’s closing level of 3,752 yuan.

The losses came despite news that rebar inventories held by Chinese traders fell by 330,500 tonnes to 5.32 million tonnes last week, according to separate data from Steelhome.

Weakness in rebar futures was mirrored in iron ore future in Dalian which finished trade at 457 yuan, some 4 yuan lower than Friday’s closing level.

Coking coal and coke futures also came under pressure, finishing the session at 1,238.5 and 2,025 yuan respectively.

As seen in the scoreboard below, futures finished mixed in overnight trade with rebar futures continuing to soften while the bulks recovered.

SHFE Rebar ¥3,708 , -0.64%
DCE Iron Ore ¥463.00 , 0.87%
DCE Coking Coal ¥1,244.50 , -0.72%
DCE Coke ¥2,032.00 , -1.81%

The price action overnight offers few clues as to what direction iron ore spot markets will move today.

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

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