Iron ore hits fresh highs

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  • Iron ore spot markets rallied across the board on Monday, hitting fresh multi-month or multi-year highs in the process.
  • The price for high grade ore hit the highest level in over a year, helped by looming steel production cuts on environmental grounds that are encouraging mills to seek out higher quality, more efficient ores.
  • Tangshan, the largest steel production hub in China, will relax industrial output restrictions over winter compared to those of a year earlier, a move deemed to be supportive of iron ore demand at a time when profitability levels at steel mills are elevated.

Iron ore spot markets rallied across the board on Monday, hitting fresh multi-month or multi-year highs in the process.

Strength in Chinese steel markets, along with a raft of measures announced by Chinese policymakers to support economic activity, undoubtedly helped to boost sentiment across the sector.

According to Metal Bulletin, the spot price for benchmark 62% fines rose 0.7% to $73.80 a tonne, leaving it at the highest level since March 7 this year.

The benchmark has now rallied 16.9% from the year-to-date low of $63.14 a tonne struck on July 5, including 6.6% since the end of Golden Week holidays in China in early October.

In contrast to the performance of the benchmark, lower and higher grade ores rallied even more during the session.

The price of 58% fines jumped 1.6% to $43.26 a tonne, the highest level since March 5 this year. The price of 65% Brazilian fines also rose by 1.6% to settle at $98.30 a tonne, a level not seen since September 13, 2017.

The strong, across-the-board gains coincided with a rebound in Chinese steel futures on Monday.

According to data from the Shanghai Futures Exchange, the January 2019 rebar contract settled at 4,154 yuan, up from Friday’s night session close of 4,124 yuan.

The reversal following modest weakness on Friday came as China’s Hebei province, renowned for its heavy industry, announced an “orange” pollution alert between Friday to Monday, temporarily curbing output for industrial firms.

Despite only being implemented for a short period of time, the disruption helped to boost steel prices during the session, as has been the case in the past.

Along with firmer steel prices, bulk commodity futures were also supported by news that policymakers in Tangshan — the largest steel production hub in China — will relax industrial output restrictions over winter, a move deemed to be supportive of demand at a time when profitability levels are elevated.

According to Reuters, the average production cut at mills in the city would come in at 30% to 35%, lower than last year’s 42%.

“Looking ahead, relaxed winter production controls and incentives to produce more amid high steel margins will eventually lead to oversupply risks and downward pressure on steel prices and steel margins,” said Helen Lau, Analyst at Argonaut Securities.

Iron ore futures in Dalian finished the session at 524.5 yuan, up marginally from Friday evening when it closed at 523 yuan. Coking coal and coke contracts were also firm, finishing trade at 1,361.5 yuan and 2,359 yuan respectively, down marginally from 1,370 yuan and 2,372 yuan late last week.

As seen in the scoreboard below, there was very little movement upon those closing levels in overnight trade Monday.

SHFE Rebar ¥4,168 , 0.82%
DCE Iron Ore ¥525.00 , 0.67%
DCE Coking Coal ¥1,372.50 , 0.04%
DCE Coke ¥2,368.50 , -0.42%

The mixed and modest movements provides few clues as to what direction spot markets may move on Tuesday.

Chinese futures will resume trade at midday AEDT.

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