Lower grade iron ore prices continue to charge higher

KAREN BLEIER / AFP / Getty Images
  • Iron ore markets continued to rebound on Tuesday after plunging early last week.
  • Prices for cheaper, less efficient ore, surged again, extending the rally over the past week to nearly 9%.
  • Near-dated Chinese steel and bulk commodity contracts continued to rally in overnight trade, hinting that the momentum in spot markets may continue into Wednesday.

Iron ore spot markets rose again on Tuesday, continuing the rebound from multi-month lows struck early last week.

According to Metal Bulletin, the price for benchmark 62% fines jumped 1.2% to $67.16 a tonne, leaving it at a two-week high.

It’s now bounced 4.5% over the past six sessions.

“Iron ore prices continued to gain on the back of higher steel prices and margins,” said Vivek Dhar, Mining and Energy Commodities Analyst at the Commonwealth Bank. “Steel prices have lifted as the 90-day trade truce between US and China boosted demand hopes.”

Like the benchmark, gains were also recorded across higher and lower grades on Tuesday.

The price for 65% Brazilian fines inched higher for a second consecutive session, lifting 0.1% to $83 a tonne.

After surging 4% a day earlier, the price for 58% jumped by a further 2.4% to $43.11 a tonne. Over the past week it’s rebounded by a massive 8.5%, narrowing the price discount to the benchmark to lowest level since August last year.

The price premium for 65% fines over the benchmark also moved back towards multi-month lows struck in November.

“Rapidly falling steel margins show that the elevated high-grade premium was partly cyclical, rather than structural,” says Marius van Straaten and Susan Bates, Commodity Researchers at Moran Stanley.

“Steelmakers are not maximising their output anymore, as cost saving is now more important than pursuing productivity.”

Hinting the momentum in spot markets may continue into Wednesday’s session, Chinese steel and bulk commodity futures continued to rally in overnight trade on Tuesday.

Here’s the closing scoreboard.

SHFE Hot Rolled Coil ¥3,636 , 2.08%
SHFE Rebar ¥3,768 , 1.24%
DCE Iron Ore ¥502.50 , 0.50%
DCE Coking Coal ¥1,406.00 , 1.52%
DCE Coke ¥2,312.00 , 2.35%

Rebar and hot-rolled coil futures in Shanghai finished at 3,768 and 3,636 yuan, up from 3,705 and 3,550 yuan on Monday evening.

Iron ore, coking coal and coke contracts also rallied, ending trade at 502.5, 1,406 and 2,312 yuan respectively, above Monday’s night session close of 496, 1,379.5 and 2,237 yuan.

For the moment, we continue to focus on near-dated futures contracts given trading volumes remain strong with movements more closely aligned to those in spot markets. Some steel and bulk commodity future currently have more open interest in the May 2019 contract, rather than the January 2019 contracts cited above.

Trade in Chinese commodity futures will resume at midday AEDT.

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