- Iron ore spot prices fell across the board on Monday. The losses in mid and higher grades were particularly acute.
- The weakness in spot markets was replicated in Chinese steel and iron ore futures during the session.
- Losses in futures grew as gains in Chinese stocks accelerated. All mainland Chinese stock indexes rallied more than 5% during the session.
- Chinese steel futures rebounded during Monday’s night session. However, that buying did not extend to Dalian futures.
Iron ore spot markets fell heavily on Monday, led by steep losses in mid and higher grades.
According to Metal Bulletin, the price for benchmark 62% fines slumped 2.1% to $84.84 a tonne, registering its largest fall in two weeks.
The benchmark has now shed 6.3% since hitting a multi-year high of $90.58 a tonne on February 11, leaving it at the lowest level since late January.
Large declines were also seen across higher grades on Monday.
The price for 65% fines skidded by 2.6% to $96.90 a tonne, leaving it down 6.2% from the multi-year peak of $103.30 a tonne struck on February 8. Like the benchmark, it also sits at levels not seen since late January.
In contrast to the performance in higher grades, lower grade ore fared better on Monday with 58% fines falling by a smaller 0.4% to $68.94 a tonne.
With the benchmark falling by a larger degree, the price discount for 58% fines fell to levels not seen since late August 2016.
The weakness in spot markets was mirrored in Chinese steel and iron ore futures on Monday.
According to the Dalian Commodities Exchange, the most actively traded May 2019 contract finished at 598.5 yuan, down substantially from 619 yuan on Friday evening.
The large reversal in iron ore was replicated in Chinese steel contracts traded separately in Shanghai.
Rebar and hot-rolled coil futures eased to 3,682 and 3,678 yuan respectively, down from Friday’s night session close of 3,753 and 3,735 yuan.
Curiously, the losses in commodity futures accumulated as gains in Chinese stocks accelerated, hinting that some investors may have chosen to liquidate positions in futures in order to buy into the stock market rally.
Mainland Chinese stock indexes all rallied by more than 5%, their largest one-day percentage increase in several years.
“The animal spirits are back in China’s stock markets,” said Bill Bishop, author of the popular Sinocism newsletter.
“The key indexes are now technically in a bull market and the turnover Monday was the highest since November 2015.
“The trade negotiation extension helped sentiment but the bigger drivers in China appear to be comments Xi made about capital markets at Politburo Study session over the weekend, the growing belief that the government is easing off the deleveraging campaign, and stock margin lending.”
Others put the weakness in iron ore and steel futures down to a continued build in Chinese inventories.
“Iron ore inventories reached their highest level since November,” said analysts at ANZ bank citing data from Steelhome. “Steel rebar inventories gained for the tenth straight week to hit 8.4 million tonnes.
Coking coal and coke contracts in Dalian closed mixed — the former edged higher to 1,291 yuan while the latter slipped to 2,138 yuan, some 33 yuan below the level it closed on Friday evening.
As seen in the scoreboard below, futures finished mixed on Monday evening.
SHFE Hot Rolled Coil ¥3,720 , 0.30%
SHFE Rebar ¥3,714 , -0.30%
DCE Iron Ore ¥597.50 , -2.53%
DCE Coking Coal ¥1,284.00 , -0.54%
DCE Coke ¥2,122.50 , -1.51%
Steel futures in Shanghai both reversed earlier losses although that move did not extend through to bulk commodity contracts in Dalian.
Trade in Chinese commodity futures will resume at 12pm AEDT.
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