A big reversal in futures today could wipe out iron ore's recent gains

Hannah Peters/Getty Images

It’s getting hard to keep up with the wild swings in iron ore spot markets.

Only a day after logging the largest decline in a month, prices went hard into reverse on Friday, ripping higher on the back of strength in futures markets.

According to Metal Bulletin, the spot price for benchmark 62% fines jumped by 2.6% to $62.46 a tonne, recovering much of the 2.9% plunge recorded on Thursday.

Lower and higher grades also bounced during the session.

The price for 58% fines rose 2.4% to $37.17 a tonne, marginally outpacing a 2.3% increase in ore with 65% Fe content which finished at $85.40 a tonne.

The strong rebound coincided with reports of steel mill restocking after recent price falls.

“Iron ore prices rebounded on reports of stronger restocking demand amongst Chinese steel mills,” said Vivek Dhar, mining and energy analyst at the Commonwealth Bank.

Rebar futures in Shanghai surged 4.3% to 3,776 yuan per tonne, all but erasing the weakness seen earlier in the week.

That helped to boost the price of steel’s raw ingredients with iron ore, coking coal and coke futures jumping by 5.4%, 2.9% and 2.5% respectively to 469 yuan, 1,152.50 yuan and 1,762.50 yuan.

However, despite the strong gains seen on Friday, Dhar cautioned that restocking demand was unlikely to last given steel production curbs that will be implemented in full by the middle of November.

“Restocking demand will likely be limited as steel output cuts in northern China — starting from November 15 to March 15 — continue to dampen the demand outlook for iron ore,” he says.

Indeed, as seen in the scoreboard below, it looks like that restocking concluded as quickly as it began on Friday with futures going hard into reverse on Friday evening.

SHFE Rebar ¥3,614 , -1.77%
DCE Iron Ore ¥456.00 , 0.66%
DCE Coking Coal ¥1,121.50 , -0.18%
DCE Coke ¥1,694.00 , -1.88%

Given the scale of declines seen during Friday’s night session, it points to the likelihood that spot markets will also weaken should futures hold or build upon those losses today.

Trade in Chinese commodity futures will resume at midday AEDT.

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.