- The price for mid and lower iron ore grades surged on Wednesday, closing at fresh multi-month highs.
- Analysts put the surge down to a combination of supply and demand factors. Strength in steel futures was another factor.
- Chinese futures gave back some ground in overnight trade on Wednesday, coinciding with the release of Chinese credit data for September that was regarded as being softer-than-expected.
The price for mid and lower iron ore grades surged on Wednesday, closing at fresh multi-month highs.
According to Metal Bulletin, the spot price for benchmark 62% fines jumped 2.6% to $73.36 a tonne, leaving it at the highest level since March 7 this year.
It’s now rallied 16.2% from the year-to-date low of $63.14 a tonne struck in early July, including 6% since the end of Gold Week holidays in early October.
Fresh from climbing to the highest level since early March on Tuesday, lower grade ores continued to rally with the price for 58% fines surging 1.9% to $42.42 a tonne, a level not seen since March 7.
However, while mid and lower grades settled at seven-month highs, the buying frenzy did not extend to higher grade ores with the price for 65% Brazilian fines finishing the session at $97.10 a tonne, down 0.1% from Tuesday.
The flat to higher moves in spot markets followed a surge in Chinese steel and bulk commodity futures during the session.
Rebar futures in Shanghai finished trade at 4,197 yuan, significantly higher than the 4,126 yuan it closed on Tuesday evening. It has now rallied in six of the past seven sessions, settling at the highest level in a month.
The strength in steel futures flowed through to bulk commodity contracts traded separately in Dalian with iron ore, coking coal and coke all rallying hard from Tuesday’s night session close.
The January 2019 iron ore contract jumped to 523.5 yuan, well above the 509 yuan level it finished in overnight trade. Like spot markets, it too sits at the highest level since early March.
Coke and coking coal contracts were also bid, climbing to 2,513 yuan and 1,412 yuan respectively, again, well above the 2,462.5 yuan and 1,393 yuan levels they closed on Tuesday evening.
The January 2019 coking coal contract now sits at the highest level in 13 months.
Richard Lu, an analyst at CRU consultancy in Beijing, told Reuters the across-the-board gains in bulk commodities were driven by a combination of factors.
On the demand side, he said the decision to allow Chinese provinces to set their own output restrictions during winter could see demand for raw materials remain firm.
“This means that overall demand for steelmaking raw materials will be more than expected even though there will be some constraints,” he said. “So that’s providing some upside for prices.”
Chinese policymakers have introduced or announced restrictions on industrial output levels during winter months in an attempt to improve air quality, especially in northern regions.
On the supply side of the equation, he said tight supply of coking coal may have also contributed to the steep gains seen during the session.
“Coking coal supply in China is also tighter as winter approaches with the transport of thermal coal — needed to fuel power plants — being given priority over coking coal,” said Lu.
“We have also seen supply restrictions from Australia and Mozambique. The supply of metallurgical coal in the global seaborne market is quite tight at the moment.”
The removal of temporary output restrictions in Tangshan on Thursday, a centre of heavy industry in the northern province of Hebei, may have also been a factor, along with continued strength in steel prices.
However, after a strong move earlier in the day, all steel and bulk commodity contracts gave back ground in overnight trade on Wednesday.
SHFE Rebar ¥4,163 , 0.17%
DCE Iron Ore ¥522.50 , 1.65%
DCE Coking Coal ¥1,389.00 , -0.04%
DCE Coke ¥2,444.50 , -0.99%
The partial reversal of recent gains followed the release of monetary growth figures from China during September that were widely regarded as being weaker-than-expected, suggesting that policymakers are not yet at the point where they feel the need to stimulate the economy further.
“The soft credit data is more evidence that the stimulus so far is reactive, not proactive,” said economists at Macquarie Bank. “Things have to get worse for policymakers to step up stimulus.”
Chinese commodity futures will resume trade at midday AEST.
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