Iron ore prices jump

Con Chronis/Getty Images
  • Iron ore spot markets rose strongly across the board on Wednesday.
  • Chinese iron ore production fell to 65.5 million tonnes last month, the smallest amount during a non-winter period since 2008. Chinese mines generally produce cheaper, lower quality iron ore, than major seaborne producers.
  • Chinese rebar and bulk commodity futures ripped higher in overnight trade, suggesting spot markets are likely to start off on a stronger footing today.

After some erratic moves in recent days, some uniformity returned to iron ore spot markets on Wednesday with strong gains recorded across the board.

And with Chinese steel and iron ore futures climbing in overnight trade, there maybe further upside to come on Thursday.

According to Metal Bulletin, the spot price for benchmark 62% fines jumped 1.8% to $65.24 a tonne, its largest percentage gain in five weeks.

While it remains firmly entrenched in the trading range first established in March, it now sits at the highest level since late June.

Strong gains were also recorded across lower and higher grades, albeit not to the same scale seen in the benchmark.

After surging over 2% on Tuesday, 58% fines continued to surge, adding 1.4% to settle at $38.19 a tonne.

The price of 65% fines lagged the broader move, closing up 0.5% at $91.70 a tonne.

Continued strength in Chinese steel prices may have underpinned the move. There were also reports of mills restocking as normal operations resumed following temporary, weather-related curbs.

Unlike the moves seen in spot markets, and somewhat unusually compared to prior form, there was limited activity in futures markets during Wednesday’s day session.

Rebar futures in Shanghai finished at 3,940 yuan, down marginally from Tuesday’s night session close of 3,942 yuan.

Iron ore, coking coal and coke futures were also quiet, finishing at 465.5, 1,140 and 2,000.5 yuan respectively, down from Tuesday’s night session closing levels of 467, 1,144.00 and 2,014.50 yuan.

However, after treading water during the day session, futures ripped higher overnight, pointing to the likelihood that spot markets will begin trade on a stringer footing today.

SHFE Rebar ¥3,988 , 1.22%
DCE Iron Ore ¥471.50 , 1.18%
DCE Coking Coal ¥1,151.00 , 0.52%
DCE Coke ¥2,019.50 , 0.60%

Rebar futures briefly traded above 4,000 yuan during the session, undoubtedly helping to drag bulk commodity contracts along for the ride.

Iron ore futures may have also been supported by the release of Chinese production figures for June, revealing iron ore output fell to 65.5 million tonnes in June, the weakest level during a non-winter month since 2008.

Thomson Reuters

As is evident in the price discount for lower grades compared to mid-and-higher grades at present, China’s desire for blue skies is seeing mills favour more efficient higher grades, especially at a time when steel prices and operating margins are elevated.

That’s weighing not only on the price for lower grades but also Chinese iron ore output given the quality of its ore is well below that of major seaborne producers from Brazil and Australia.

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

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