Iron ore is closing in on $80 a tonne

Star Wars Episode IV/ Lucasfilm/Twentieth Century Fox. Source: IMDB
  • Iron ore spot markets rallied again on Monday on the back of strength in Chinese steel prices
  • The benchmark iron ore price sit at the highest level in six months, and is quickly closing in on $80 a tonne
  • Chinese iron ore and rebar futures eased in overnight trade

Iron ore is at a six-month high, rallying yet again on Monday.

According to Metal Bulletin, the spot price for benchmark 62% fines rose 0.7% to $79.36 a tonne, leaving it sitting at the highest level since August 22 last year.

It’s now up 9.3% for the year.

As opposed to recent trends, lower grades outperformed during the session with the price of 58% fines rising 0.9% to $44.24 a tonne.

Ore with 65% Fe content went the other direction, sliding 0.2% to $95 a tonne.

The move in spot markets followed another strong rally in rebar futures in Shanghai which jumped back above the 4,000 yuan a tonne level for the first time since early December on news of further steel production curbs in the Chinese city of Tangshan.

The May 2018 contract finished up 3.3% at 4,047 yuan a tonne.

“The bullish steel price view reflected an order issued by the Tangshan city government for blast furnace steel mills in its jurisdiction to reduce utilisation rates 10-15% from March 16 to November 14,” said Vivek Dhar, mining and energy commodities analyst at the Commonwealth Bank.

“Tangshan is major steel producing region in China and the order could signal further restrictions to northern China’s industrial production outside of the heating season [between] mid-November to mid- March.”

Analysts at Macquarie Bank also pointed to lower-than-usual Chinese steel inventory levels as another factor that will not only support steel prices in the near-term, but also iron ore and coking coal.

“[We’re] short-term bullish on steel and its raw materials,” the bank says.

“As construction sites fire back up in Northern China, another run in rebar prices will take iron ore and metallurgical coal with it.”

That certainly was the case on Monday with soaring rebar prices helping to lift iron ore and coking coal futures during the session.

Iron ore futures closed up 1.3% at 549 yuan a tonne, pulling back from a seven-week high of 556.5 yuan tonne struck in early trade.

Coke and coking coal contracts also ripped higher, adding 4.1% and 2.3% respectively to finish at 2,279 yuan and 1,412 yuan a tonne.

However, after such a strong move during Monday’s day session, those gains could not be sustained in overnight trade with most contracts easing lower.

SHFE Rebar ¥4,017 , 0.43%
DCE Iron Ore ¥547.00 , -0.55%
DCE Coking Coal ¥1,413.50 , -0.07%
DCE Coke ¥2,269.00 , 0.58%

While the pullback suggests the strength in spot iron ore markets may reverse, the price action in recent day sessions — usually on the back of significantly higher volumes — has been a far better guide as to what may happen in physical markets.

Trade in all Chinese commodity futures will resume at midday AEDT.

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