Iron ore prices perk up as Chinese steel futures surge

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  • Iron ore spot and futures markets rose strongly on Monday, largely reversing the declines seen last week.
  • Chinese steel futures jumped sharply on news of further output restrictions in a major Chinese industrial centre.
  • Iron ore prices now sit at or just below multi-year highs.

Iron ore prices rebounded on Monday following several days losses, finding support from a surge in Chinese steel futures during the session.

According to Metal Bulletin, the spot price for benchmark 62% iron ore fines jumped 2.6% to $94.48 a tonne, recouping most of the declines seen in the previous five sessions.

The benchmark now sits just below the five-year high of $96.47 a tonne set on April 12.

Strong gains were also seen across lower and higher iron ore grades on Monday.

The price for 65% Brazilian fines rose 1.7% to $107.80 a tonne, snapping a three-day losing streak in the process.

58% fines also rose by 1.7% to $80.53 a tonne, leaving it at fresh five-year highs.

The gains in physical markets mirrored a rebound in Dalian iron ore futures on Monday with the September 2019 contract lifting to 627 yuan, up 1.3% from Friday’s day session close.

The most actively traded coking coal contract in Dalian also rose to 1,330.5 yuan while coke futures were near unchanged at 2,033.5 yuan.

The strength in physical and bulk commodity futures coincided with strong gains in Chinese steel futures following an abrupt selloff late last week.

According to pricing from the Shanghai Futures Exchange, the most actively traded October 2019 rebar contract jumped to 3,773 yuan, up 1.6% from Friday’s day session close.

Futures surged as much as 2.9% shortly after the resumption of trade on Monday, helped by news of temporary industrial output curbs being rolled out in the city of Tangshan, China’s largest steel production hub.

Authorities in the city issued a second-level smog alert on Saturday, according to Reuters, limiting industrial activity between April 20 to April 25 in an attempt to improve air quality.

While the temporary measures are due to end on Friday this week, some analysts believe tighter restrictions will be introduced on a more permanent basis in Tangshan in the months ahead, potentially limiting steel supply for domestic markets.

“If Tangshan strictly implements production restrictions in May, we would see steel supply falling more sharply than demand,” said Gu Meng, an analyst from Orient Futures, in a note seen by Reuters.

“With increasing steel prices and therefore profit-margins at mills, prices of steel-making raw ingredients will also go up despite decreasing demand.”

Hinting that the rebound in physical markets may continue into Tuesday’s trading session, Chinese steel and iron ore futures continued to edge higher in overnight trade on Monday.

SHFE Hot Rolled Coil ¥3,724 , 0.00%
SHFE Rebar ¥3,789 , 0.16%
DCE Iron Ore ¥629.00 , -0.55%
DCE Coking Coal ¥1,333.00 , -0.15%
DCE Coke ¥2,032.50 , -0.78%

Rebar futures rose to 3,789 yuan, up from the day session close of 3,773 yuan, while Dalian iron ore climbed two yuan to 629 yuan.

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

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