Iron ore gets a boost from stronger steel prices in China

Scott Barbour / ALLSPORTBut will that last?
  • Iron ore prices rose on Tuesday, supported by strength in Chinese steel markets.
  • Futures finished mixed in overnight trade with rebar contracts holding earlier gains while iron ore contracts fell.
  • The Commonwealth Bank expects prices for higher grade iron ore to remain supported in the period ahead.

Iron ore prices rose on Tuesday, supported by strength in Chinese steel markets.

According to Metal Bulletin, the spot price for benchmark 62% fines rose 0.7% to $67.23 a tonne, largely reversing much of the 1% decline seen a day earlier.

As seen in the chart below, the benchmark has been stuck in a narrow trading band for much of the past three months.

Lower grade ores outperformed during the session with 58% fines adding 1.2% to $39.29 a tonne. In contrast, higher grades lagged with 65% fines dipping 0.2% to $88.20 a tonne.

The mixed performance followed renewed buying in Chinese spot and steel futures on Tuesday.

According to Reuters, China’s top steelmaking companies — Baoshan Iron & Steel and Wuhan Iron and Steel — said they will increase prices of some hot-rolled coil, beam and steel wire products for July delivery.

That followed a separate announcement on Monday from Jiangsu Shagang Group, China’s largest privately-owned steel mill by production capacity, that it would lift spot rebar and some wire products prices for June 11-20 delivery.

The news helped to boost spot steel prices, something that flowed through to futures markets during the session.

Rebar futures on the Shanghai Futures Exchange closed Tuesday’s day session at 3,856 yuan, well above Monday’s night session close of 3,811 yuan a tonne.

It was the highest close for the October 2018 contract since December last year.

The strength in rebar futures helped to reverse earlier losses for iron ore futures in Dalian which finished trade at 473.5 yuan, up marginally from the 470.5 yuan level it closed on Monday evening.

However, as seen in the scoreboard below, futures put in a mixed performance in overnight trade with rebar futures holding onto earlier gains while iron ore contracts succumbed to profit-taking.

SHFE Rebar ¥3,853 , 0.78%
DCE Iron Ore ¥468.00 , -0.32%
DCE Coking Coal ¥1,263.00 , 0.36%
DCE Coke ¥2,132.00 , 1.77%

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

From a longer-term perspective, Vivek Dhar, Mining and Energy Commodities Analyst at the Commonwealth Bank, says higher iron ore grades are likely to remain supported in the period ahead, especially should steel prices remain elevated.

“While we expect iron ore prices to trend lower to $US55 a tonne by the December quarter, we expect the ride to be bumpy,” he says.

“Healthy steel mill margins will prove the major support for iron ore prices in the short term. We also expect a structural preference for higher grade ores (65% Fe), as policymakers look to combat pollution and boost productivity.”

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