Iron ore prices rebound, and Credit Suisse says there may be further gains to come

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  • Iron ore prices rebounded on Tuesday after two days of heavy losses.
  • Chinese steel futures rallied hard, helping to lift bulk commodity contracts, including iron ore.
  • Credit Suisse sees the benchmark iron ore price averaging $90 a tonne in the June quarter this year.

Iron ore prices rebounded on Tuesday after two days of heavy losses. The largest moves were once again seen across mid and higher grades.

According to Metal Bulletin, the spot price for benchmark 62% fines rose 1.7% to $85.25 a tonne, reversing around a third of the decline seen in the prior two sessions.

65% fines also recovered, lifting 1.6% to $96.80 a tonne. It has now recorded four daily percentage moves in excess of 1% in a row — two up and two down — reflecting the choppiness in spot markets recently.

58% fines again recorded minimal movement, lifting two cents to $68.38.

“The price rebound was stoked by news that Vale had been ordered to suspend port activities at its Guaiba Island terminal,” said analysts at ANZ Bank.

“Local authorities issued the company with a notice of closure on Monday. While Vale expects operations to resume shortly, it refocuses the markets mind on the issues in Brazil.”

The reversal in spot markets mirrored the performance of Chinese steel and bulk commodity futures on Tuesday.

In Dalian, the most actively traded iron ore contract rose to 612.5 yuan, up from 603.5 yuan on Monday evening.

Coke futures also climbed after several days of losses, closing the session at 2,005 yuan. Coking coal was largely unchanged at 1,228 yuan.

The uplift in the bulks coincided with strong gains in steel futures in Shanghai.

The May 2019 rebar contract jumped to 3,815 yuan, up from Monday’s night session close of 3,765 yuan. Hot-rolled coil also rallied, finishing at 3,776 yuan, up from 3,745 yuan on Monday evening.

As seen in the scoreboard below, there was little movement upon those levels in overnight trade on Tuesday.

SHFE Hot Rolled Coil ¥3,762 , 0.32%
SHFE Rebar ¥3,817 , 0.95%
DCE Iron Ore ¥609.50 , 0.66%
DCE Coking Coal ¥1,235.00 , 0.53%
DCE Coke ¥2,000.50 , 0.43%

The mixed and modest price movements provides few clues as to what direction physical markets will move on Wednesday. Trade in Chinese commodity futures will resume at midday AEDT.

While the recent price action in iron ore spot and futures markets has been somewhat skittish, often moving wildly from one day to the next, from a longer-term perspective prices have been relatively stable, just sitting below multi-year highs.

Commodity analysts at Credit Suisse expect that theme will continue, forecasting the benchmark price will average $90 a tonne in the June quarter this year.

“We expect the price to pass $90 in late-March as restocking for the construction season progresses, and traders and mills begin to buy spot cargoes,” Credit Suisse said.

“Our new numbers now build in estimates of production losses for decommissioning Upstream tailings dams which has stripped around 50 million tonnes of Brazilian seaborne iron ore supply from our supply balance in 2019. We have also lifted our forecast for China’s crude steel output in 2019 by 38 million tonnes from our November estimate.

Credit Suisse expects supply disruptions in Brazil will begin to impact Chinese imports in April, coinciding when Chinese steel production will be in full swing for the Spring construction season.

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