Lower grade iron ore prices hit multi-year highs

Clement Mahoudeau/IP/Getty Images
  • Lower iron ore grades rallied to multi-year highs on Friday. In contrast, mid and higher grades fell quite sharply.
  • Steel prices weakened as output restrictions in Tangshan, China’s largest steel production hub, were removed.
  • Lower steel prices, helping to depress steel mill profit margins, may explain the divergent performance in iron ore spot markets on Friday.

Iron ore spit prices diverged on Friday with lower grades hitting multi-year highs while those for higher grades went backwards.

According to Metal Bulletin, the price for 58% fines jumped 1.5% to $70.38 a tonne, equaling the multi-year high struck in early February.

In contrast to the move seen in cheaper, less efficient grades, prices for mid and higher grades went backwards during the session.

The price for benchmark 62% fines slipped 0.8% to $86.52 a tonne, while those for 65% Brazilian fines fell by a smaller 0.7% to $97.50 a tonne.

The move in spot markets followed the lifting of output restrictions in Tangshan, China’s largest steel production hub.

In response to the news, Chinese rebar and hot-rolled coil futures fell sharply on Thursday evening, sliding to 3,773 and 3,677 yuan respectively. Those moves were extended during Friday’s day session with rebar finishing at 3,763 yuan while the most actively traded hot-rolled coil contract eased by a further four yuan to 3,673 yuan.

With output curbs lifted, prices for steel’s raw ingredients rose, benefiting from expectations of increased demand.

Dalian iron ore futures rose to 627 yuan, up from 621.5 yuan on Thursday evening. Coke futures also edged higher to finish at 1,994 yuan while the May 2019 coking coal contract edged lower to 1,237 yuan, down from Thursday’s night session close of 1,246 yuan.

The subsequent narrowing in profit margins for Chinese steel mills may explain why spot prices for lower grade ore rallied on Friday.

While futures finished mixed during Friday’s day session, there was more uniformity on Friday evening with all five contracts trading flat to higher.

SHFE Hot Rolled Coil ¥3,694 , 0.46%
SHFE Rebar ¥3,780 , 0.40%
DCE Iron Ore ¥628.00 , 0.88%
DCE Coking Coal ¥1,236.00 , -0.52%
DCE Coke ¥1,994.00 , 0.18%

Steel and iron ore contracts edged higher, pointing to the possibility of firmer conditions in physical markets in early deals on Monday.

Trade in Chinese commodity futures will resume at midday AEDT.

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