Iron ore prices are surging again

  • Mid and higher grade iron ore prices surged on Friday. Lower grades, however, went backwards.
  • Chinese steel production slowed sharply in November. while urban fixed asset investment strengthened a touch, helping to support steel prices. Two major steel production hubs also announced more stringent industrial curbs on environmental grounds.
  • Chinese steel and bulk commodity futures rose again on Friday evening, led by Dalian iron ore.

Iron ore prices surged on Friday, recording the largest one-day percentage gain in nearly a year.

According to Metal Bulletin, the spot price for benchmark 62% fines jumped 4.6% to $70.74 a tonne, leaving it at a three-week high.

It was also the largest daily increase since December 22 last year.

Higher grade ore was also in demand with the price of 65% Brazilian fines lifting 2.2% to $85.30 a tonne.

In contrast, the price for lower grades fell sharply with 58% fines sliding 1.2% to $42.70 a tonne.

Perhaps explaining the divergence across the grades, Chinese steel prices gained during the session on news two major steel producing centres will introduced tougher industrial output curbs over the remainder of the year.

According to Reuters, steel futures rose after regulators in Tangshan and Xuzhou asked mills to curtail output amid concerns they will not meet their pollution reduction targets this year.

“The city government in Tangshan, which accounts for about 10% of China’s total steel output, ordered mills to comply with cuts mandated under a so-called first-level smog alert, according to a notice sent to officials on Tuesday,” Reuters said.

“The directive means production should be cut by 40% from the current second-level alert with cuts of only 30%.”

Xuzhou, located in China’s Jiangsu province, also ordered mills to shut down operations throughout December.

Separately, Chinese crude steel output slowed in November, according to data released by China’s National Bureau of Statistics (NBS), helping to support steel prices on Friday.

Total production in November stood at 77.62 million tonnes, the lowest amount in seven months. However, reflecting the impact of less-stringent environmental output restrictions this year, total production was still up 10.8% from 12 months earlier.

The decline in production last month was partially driven by environmental curbs and declining steel mill profitability, lessening the desire to sustain prior output levels.

A small acceleration in Chinese fixed asset investment in November also helped to bolster confidence about stronger steel demand ahead.

Rebar and hot-rolled coil futurs futures in Shanghai closed at 3,425 and 3,443 yuan respectively, up 1.1% apiece from Thursday’s day session close.

That helped to support bulk commodity futures traded separately in Dalian with iron ore, coking coal and coke contracts for May delivery next year lifting 1.5%, 1.7% and 0.9% respectively from Thursday afternoon to close at 483, 1,250 and 2,024 yuan.

As seen in the scoreboard below, those gains continued in overnight trade on Friday evening.

SHFE Hot Rolled Coil ¥3,462 , 0.52%
SHFE Rebar ¥3,461 , 0.99%
DCE Iron Ore ¥491.00 , 2.08%
DCE Coking Coal ¥1,252.50 , 0.20%
DCE Coke ¥2,034.00 , 0.69%

Gains were recorded across all five contracts, especially iron ore, pointing to the likelihood of strength in spot markets in early deals on Monday.

Trade in Chinese commodity futures will resume at midday AEDT.

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