Iron ore gets a boost from higher steel prices

Scott Barbour / ALLSPORT
  • Iron ore prices rose across the board on Thursday.
  • China’s Hebei Province announced further shuttering of excess steel production capacity in the coming years, helping to support steel prices.
  • Chinese steel and iron ore futures rebounded on the news, but have since given back those gains. Output restrictions in Chinese city of Tangshan were due to be removed on Wednesday.
  • HSBC says recent strength in iron ore prices is “unsustainable” and is expected to “correct materially”.

Iron ore prices rose across the board on Thursday, supported by firmer Chinese steel prices.

According to Metal Bulletin, the price for benchmark 62% fines rose 0.6% to $87.61 a tonne. 58% fines increased by a smaller 0.5%, settling at $68.86 a tonne, while 65% fines jumped 1.4% to $99.70 a tonne, moving back towards the multi-year high of $103.30 set in early February.

Helping to explain the price performance across the grades, Chinese steel prices lifted during the session, supported by ongoing output curbs in the northern Chinese city of Tangshan and news that China’s Hebei province — where Tangshan is located — will continued to shutter old or inefficient steel production capacity over the next two years.

Hebei produced over a quarter of all Chinese steel last year.

Rebar and hot-rolled coil futures in Shanghai lifted to 3,821 and 3,752 yuan a tonne respectively, up sharply from 3,753 and 3,728 yuan on Wednesday evening.

The rally in steel futures helped to spark a reversal in Dalian iron ore futures which finished at 623.5 yuan, up from the prior night session close of 613 yuan.

However, as is so often the case in Chinese commodity futures, the move of the day session was reversed in overnight trade.

SHFE Hot Rolled Coil ¥3,711 , -0.54%
SHFE Rebar ¥3,774 , 0.00%
DCE Iron Ore ¥615.00 , -0.24%
DCE Coking Coal ¥1,255.00 , -1.22%
DCE Coke ¥2,037.50 , -1.78%

The most actively traded rebar, hot-rolled coil and iron ore contracts are basically unchanged from 24 hours earlier, while coking coal and coke have fallen heavily.

The move coincided with Tangshan lifting curbs on industrial production that had been in place since the start of the month. Whether that’s behind the reversal is questionable.

While the recent price action in iron ore spot and futures markets has been choppy, bouncing around just below multi-year highs, HSBC’s metals and mining equity team believe indecisive moves are unlikely to last.

“Iron ore prices have overreacted to small supply disruptions,” HSBC said, referring to the impact of a mining disaster in Brazil in late January.

“We believe this is unsustainable and expect spot prices to correct materially towards the $60s over the medium-term.”

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