Iron ore escaped the carnage seen in other commodity markets

Coope/BIPs/Hulton Archive/Getty ImagesTeflon coated.
  • Iron ore behaved more like a safe haven asset on Thursday, managing to avoid the carnage seen in other commodity markets.
  • Both spot and futures markets were little changed despite another steep selloff in the Chinese yuan.
  • The resilient price action continued in futures trade overnight.

Iron ore managed to avoid the carnage seen in other commodity markets on Thursday, recording modest gains across the board.

The spot price for benchmark 62% fines rose by one solitary cent to $65.25 a tonne, according to Metal Bulletin, mirroring the resilience seen in Chinese iron ore futures during the session.

Lower and higher grades also recorded modest gains.

The price of 58% rose by 0.2% to $38.26 a tonne, outpaced by a 0.5% increase in the price for 65% fines which settled at $92.20 a tonne.

“Some normalisation is likely, but we believe it won’t revert to historical levels,” said Marius Van Straaten and Susan Bates, analysts at Morgan Stanley, in relation to the widening price premium being paid for higher grade ore.

“The high-grade premium is starting to look overdone against China steel mill margins, so steelmakers might be paying more for high-grade iron ore than the actual value of the additional productivity benefit.”

The modest gains in spot markets followed another bout of buying in Chinese rebar futures in Shanghai, sending the October 2018 contract as high as 4,014 yuan, the loftiest level in 10 months.

It eventually finished the session at 3,963 yuan, down from Wednesday’s night session close of 3,988 yuan.

Bulk commodity contracts mirrored the movements seen in steel markets, pushing higher earlier in the session before giving back ground in late trade.

Dalian iron ore, coking coal and coke futures finished trade at 467.5, 1,160.5 and 2,021 yuan respectively. They closed Wednesday’s night session at 471.50, 1,151.00 and 2,019.50 yuan respectively.

While all contracts weakened into the close, it was still a resilient performance compared to some of the ugly moves seen in other commodity markets.

The strength in Chinese futures coincided with a renewed selloff in the Chinese yuan, helping support prices given they are priced in local currency terms.

Given these commodities are also priced in US dollar terms, investors could be using futures contracts as a hedge against further weakness in yuan, especially given a lack of alternate foreign denominated investments available in China.

Despite further declines in commodity markets overnight, Chinese futures continued to buck the trend, climbing modestly from Thursday’s day session close.

SHFE Rebar ¥3,980 , -0.10%
DCE Iron Ore ¥469.50 , -0.21%
DCE Coking Coal ¥1,162.50 , 0.43%
DCE Coke ¥2,027.00 , 0.00%

All contracts finished trade marginally higher, pointing to the likelihood of continued resilience on Friday.

Trade in Chinese commodity futures will resume at 11am. Keep an eye on movements in the Chinese yuan today. They’re likely to be influential.

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