Iron ore prices continue to drift higher -- and it looks like there's more upside to come

JEAN-CHRISTOPHE VERHAEGEN/AFP/Getty ImagesIron ore grades on Thursday.
  • Iron ore spot markets inched higher on Thursday.
  • Global crude steel output stood at 151.4 million tonnes in June, up 5.8% from a year earlier. It was the second-highest monthly amount on record.
  • Dalian iron ore futures surged in overnight trade, pointing to strength in spot markets today.

Iron ore prices drifted higher on Thursday, continuing the theme seen throughout much of July.

And with Chinese futures ripping higher in overnight trade, it looks like there may be more of the same to come today.

According to Metal Bulletin, the spot price for benchmark 62% fines rose 0.4% to $66.30 a tonne, leaving it at the highest level since June 26.

Modest gains were also seen across lower and higher grades.

The price of 58% fines added a solitary cent to settle at $38.88 a tonne. Meanwhile, 65% fines fared a little better, adding 0.3% to close at $92.30 a tonne.

The modest gains coincided with a small lift in Chinese rebar futures on Thursday.

According to data from the Shanghai Futures Exchange, the October 2018 contract last traded at 4,017 yuan, up from Wednesday’s night session close of 3,995 yuan.

Iron ore futures traded separately in Dalian also inched higher, closing Thursday’s day session at 475.5 yuan. Coking coal and coke futures also gained, settling at 1,196 and 2,136.5 yuan respectively.

Pointing to the likelihood that spot prices may rally today, iron ore futures surged in overnight trade.

SHFE Rebar ¥4,032 , 0.75%
DCE Iron Ore ¥488.00 , 2.74%
DCE Coking Coal ¥1,193.50 , 0.21%
DCE Coke ¥2,180.00 , 2.16%

Rebar and coke contracts also eked out gains, while coking coal futures lagged.

The strength in futures followed the release of data on global crude steel production from the World Steel Association (worldsteel).

The group said total production stood at 151.4 million tonnes in June, up 5.8% on a year earlier. Chinese production accounted for more than half the amount at 80.2 million tonnes, an increase of 7.5% year-on-year.

Despite recent strength in iron ore prices, not everyone is convinced it will last.

According to analysts at RBC Capital Markets, they’re likely to hit an “air pocket” this quarter, driven sharply lower by weakening steel demand.

“As China comes off its previous stimulus push, the key infrastructure sector — around 23% of steel consumption — is likely to see an acceleration of the year-on-year decline in spending, even with the recently announced measures,” it said in a note.

“We also expect the strength in the property sector — around 35% of steel consumption — seen thus far in 2018 to fade as the impact from mortgage curbs and policy changes to property financing cause ahead of trend investment to slow here as well.”

RBC Capital Markets sees Chinese steel demand falling 2.7% this year, larger than the 1.6% decline it forecast previously.

Given those expectations, it has lowered its price forecast for benchmark 62% fines to $48 a tonne by the end of the September quarter, representing a decline of nearly 30% from its present level.

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