Iron ore markets take a breather after a frenetic start to the week

Photo by Feng Li/Getty Images

After ripping higher to start the week, iron ore spot markets paused for breath on Tuesday.

They finished with mixed with lower grades outperforming higher grades during the session.

According to Metal Bulletin, the price for benchmark 62% fines fell 0.3% to $73.93 a tonne, pulling back after rallying 6% in the previous two sessions.

Like the benchmark, higher grades also weakened with the price of ore with 65% Fe content sliding 0.2% to $88.90 a tonne.

In comparison, lower grades continued where they left off on Monday with 58% fines jumping by a further 2.3% to $41.87 a tonne.

“The preference for high-grade iron ore is still there, but I didn’t see any tightness in supply,” a Shanghai-based iron ore trader told Reuters.

Higher grades have outperformed lower grades in recent months as restrictions on steel production in China during winter, done in an attempt to improve air quality in northern provinces, saw mills flock to more efficient ores in an attempt to boost productivity, leading to a widening in the spread between higher and lower grades.

The mixed performance in spot markets followed a modest pullback in Chinese rebar and iron ore futures on Tuesday.

The most actively traded May 2018 rebar contract in Shanghai slid 1.7% to 3,791 yuan a tonne, pulling back from Monday’s night session close of 3,843 yuan a tonne.

“This was despite data showing steel inventories continue to fall,” said Jack Chambers, Economist at ANZ Bank. “According to Steelhome data, rebar stockpiles fell to their lowest level since 2010.”

Iron ore futures in Dalian also fell, finishing the session at 528.5 yuan a tonne, down from 535.5 yuan a tonne on Monday evening.

Chambers put the declines down to profit-taking by investors.

However, fitting with the recent price action where even the smallest dips have been bought, traders reversed those losses in overnight trade on Tuesday.

Here’s the final scorecard.

SHFE Rebar ¥3,821 , -0.05%
DCE Iron Ore ¥531.00 , -0.38%
DCE Coking Coal ¥1,378.50 , 0.36%
DCE Coke ¥2,111.00 , -0.96%

The modest recovery in rebar and iron ore contracts provides few clues as to what direction spot markets will move today.

Trade will resume at midday AEDT.

As for what markets may move upon on Wednesday, Chris Weston, Chief Market Strategist at IG Markets, says traders should keep an eye out for the release of the Chinese government’s economic blueprint for 2018 during the session.

“The talk is looking quite positive for risk,” he says.

“The view is they place less emphasis on debt reduction and that debt levels will be tolerated in a bid for higher growth, notably, given creeping concerns about a softer property market and trade threats.”

Weston adds that “this could be a highlight of the session ahead”.

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