Iron ore prices have suddenly surged

Victor Fraile/Getty Images
  • Iron ore prices surged on Thursday, helped by renewed strength in Chinese steel markets.
  • More chatter about industrial output curbs, a relaxation of Chinese property restrictions in some locations, and government support for developers were cited as catalysts behind the move.
  • China’s Central Economic Work Conference (CEWC) will end today. Look out for any announcements in relation to growth targets or market reforms in the year ahead.

Iron ore markets had a quiet start to the week, but that all changed on Thursday.

Price for mid and higher grades surged as Chinese steel futures jumped to levels not seen in over a month.

According to Metal Bulletin, the spot price for benchmark 62% fines soared 4.5% to $72.26 a tonne, leaving it at the highest level since November 21.

Higher grade ore also rallied with the price for 65% Brazilian fines lifting 1.9% to $86.90 a tonne.

Lower grades were the relative laggard for the session with 58% fines increasing by 0.6% to $44.51 a tonne.

Helping to explain the strength in higher iron ore grades, rebar futures in Shanghai hit 3,492 yuan during Thursday’s day session, the highest level since November 16, before easing slightly into the close to finish at 3,481 yuan.

Prices were boosted by news that several Chinese cities had eased property market restrictions, encouraging buying in steel contracts on expectations for stronger steel demand.

“We have seen some early easing steps, including a lifting of the home reselling ban in Heze,a prefecture-level Tier-3 city in Shandong Province, and some moderate downward adjustment of mortgage loan interest rates in some large cities,” said Research Analysts at Nomura.

“It has been reported by the Securities Times, a reputable news outlet affiliated to the Party-run People’s Daily, that the central government has granted local governments the power to make their own property market policies based on their respective situations.”

In a further sign that Beijing is moving to support the property sector, the government also announced policies to support bond financing for big Chinese developers.

“Policymakers have taken more steps to ease downtrend economic pressure, which would help to further boost market sentiment,” said analysts at Huatai Futures.

Further reports of temporary output curbs on environmental grounds in China’s Hebei province, a major industrial hub, may have also helped to boost both sentiment and steel prices.

According to Reuters, citing Chinese state-run radio, at least three cities in Hebei, including provincial capital Shijiazhuang, have ordered industrial plants and miners to limit operations to lower toxic emissions.

The strength in steel markets flowed through to bulk commodity futures traded separately in Dalian with iron ore hitting 497 yuan at one point during the session, the highest level in a month.

As seen in the scoreboard below, those gains were maintained in overnight trade despite steel futures easing slightly.

SHFE Hot Rolled Coil ¥3,472 , 0.35%
SHFE Rebar ¥3,519 , 1.85%
DCE Iron Ore ¥497.00 , 1.22%
DCE Coking Coal ¥1,201.50 , 0.59%
DCE Coke ¥1,988.50 , 0.53%

Despite the strength in steel and iron ore futures on Thursday, coking coal and coke contracts failed to participate in the rally, finishing around the same levels as Wednesday evening.

Trade in Chinese commodity futures will resume at midday AEDT.

China’s Central Economic Work Conference (CEWC) is scheduled to end today. Any subsequent announcements in relation to growth targets or market reforms in the year ahead are likely to garner plenty of attention.

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