Iron ore prices slide again despite another chaotic day in Chinese futures

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  • Iron ore spot prices continued to ease on Wednesday. The benchmark price fell to a fresh three-week low.
  • The performance was in stark contrast to that of Chinese steel and bulk commodity futures which had a chaotic session, tumbling in early trade before ripping higher into the close.
  • The steep reversal in futures coincided with the issuance of a second-level smog alert in Hebei — China’s largest steel-making province — that will restrict output at industrial firms temporarily.

Iron ore spot prices continue to ease, ignoring the chaotic movements seen in Chinese steel and bulk commodity futures on Wednesday.

According to Metal Bulletin, the price for benchmark 62% fines slipped 0.8% to $74.06 a tonne, adding to the 1.9% drop seen on Tuesday.

It now sits at a three-week low.

Like the benchmark, lower grade ore also fell with the price of 58% fines dipping 0.2% to $44.77 a tonne.

Having fallen to fresh multi-month lows a day earlier, the price of 65% Brazilian fines was steady at $92.60 a tonne.

The relatively modest movements in spot markets were in complete contrast to the chaotic movements seen in Chinese futures on Wednesday. They plunged in early deals — adding to the substantial losses in overnight trade on Tuesday — before ripping higher in the latter parts of the session.

After closing Tuesday’s night session at 3,646 yuan, rebar futures in Shanghai tumbled to as low as 3,586 yuan before staging a dramatic turnaround to finish at 3,724 yuan.

Hot-rolled coil futures also went on a wild ride, sliding to as low as 3,492 yuan before recovering to close at 3,616 yuan. That too was well above the 3,523 yuan level the contract closed on Tuesday evening.

The steep and sudden reversal coincided with news that the government of China’s Hebei Province had issued a second-level smog alert, restricting output and material transportation at industrial firms due to the threat of poor air quality.

The emergency measures will begin from today, November 22, ahead of an expected worsening in air quality between November 24 to 27.

Hebei is China’s largest producer of steel product, and includes the industrial hub of Tangshan. In the past, such announcements have fueled speculative buying in steel futures on the prospect of reduced steel production (even those the contracts are for delivery in January, not today).

The reversal in steel futures saw similar price action in bulk commodity contracts traded separately in Dalian.

After ending Tuesday’s night session at 505 yuan, iron ore futures fell to as low as 498.5 yuan before storming higher to close at 526.5 yuan.

Coking coal and coke futures followed an identical path, initially tumbling in early trade before surging to finish at 1,378.5 and 2,289 yuan respectively, up from 1,348 and 2,228.5 yuan on Tuesday evening.

As seen in the scoreboard below, all five contracts managed to cling onto most of those late gains in overnight trade on Wednesday.

SHFE Hot Rolled Coil ¥3,606 , 1.21%
SHFE Rebar ¥3,715 , 0.90%
DCE Iron Ore ¥521.50 , 1.96%
DCE Coking Coal ¥1,366.50 , 1.07%
DCE Coke ¥2,274.50 , 1.04%

The recovery in futures markets points to the likelihood that spot markets may follow suit on Thursday.

Trade in Chinese commodity futures will resume at midday AEDT.

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