Iron ore prices spike as supply concerns flare again

  • Iron ore prices rallied across the board on Tuesday as concern over supply disruptions from Brazil flared again.
  • 58% and 65% fines both settled at fresh multi-year highs. The price for benchmark 62% fines surged close to 2%.
  • Chinese steel and iron ore futures reversed earlier gains in overnight trade on Tuesday, pointing to potential weakness in physical markets on Wednesday.
  • Chinese trade data for April will be released midway through Wednesday’s Asian session.

Iron ore prices rallied across the board on Tuesday as concern over supply disruptions from Brazil flared again.

However, with Chinese futures sliding in late trade, the rally may not extend into Wednesday’s trading session.

According to Metal Bulletin, the spot price for benchmark 62% fines jumped 1.9% to $96.15 a tonne, coming within a whisker of surpassing the five-year peak of $96.47 a tonne struck on April 12.

Solid gains were also posted across lower and higher grades on Tuesday.

58% fines rose 1.1% to $83.36 a tonne while 65% fines lifted 0.7% to $110.40 a tonne. The former closed at fresh five-year highs, the latter at the highest level since Metal Bulletin first introduced pricing for the grade at the start of 2016.

The moves in spot markets were surpassed by those in Dalian iron ore futures with the September 2019 contract surging to 652 yuan, up 2.9% from Monday evening. It briefly traded as high as 661.5 yuan before easing lower into the close.

Renewed supply concerns from Brazil drove the price surge.

On Monday, Brazilian miner Vale said a court had ordered it to halt operations at its Brucutu iron ore mining complex, a site with annual production capacity of 30 million tonnes, reversing a lower court decision that had allowed the mines activities to resume, according to Reuters.

Production at Brucutu has been disrupted since late January, initially following a deadly dam disaster at the site and, more recently, legal and environmental regulatory requirements.

With supply concerns mounting, another substantial decline in Chinese iron ore port inventories, coupled with weak shipping data from Brazil, also helped to support prices.

“Stockpiles at Chinese ports fell 1.8% to 133.6 million tonnes in the week to May 3,” said analysts at ANZ Bank citing data from Shanghai Steelhome.

“This follows data released last week, which showed exports from key suppliers are also falling. Shipments from Brazil dropped to 18.34 million tonnes in April, down from 25.88 million tonnes at the same time last year.”

Modest strength in Chinese steel futures may have also provided a tailwind for sentiment on Tuesday.

The most actively traded rebar and hot-rolled coil contracts in Shanghai rose to 3,767 and 3,732 yuan respectively, up marginally from the prior day session close.

Coking coal and coke futures in Dalian also pushed higher, finishing trade at 1,373 and 2,119 yuan respectively.

However, after rallying earlier in the session, all five futures contracts fell by varying degrees in overnight trade on Tuesday.

SHFE Hot Rolled Coil ¥3,708 , -0.94%
SHFE Rebar ¥3,744 , -1.08%
DCE Iron Ore ¥643.50 , -1.08%
DCE Coking Coal ¥1,367.00 , -0.26%
DCE Coke ¥2,116.00 , 0.71%

The retreat in iron ore and steel contracts points to a possible price reversal in physical markets in early deals on Wednesday.

Trade in Chinese futures will resume at 11am AEST, around two hours before Chinese trade data for April is set to be released.

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