Iron ore spot markets ripped higher on Monday, closing at a fresh three-month high.
According to Metal Bulletin, the price for benchmark 62% fines jumped 3.7% to $74.15 a tonne, leaving it at the highest level since September 13.
It’s now risen 26.7% since the end of October, powered by persistent strength in Chinese steel prices, and as a consequence, steel mill profitability, which has helped bolster confidence towards the outlook for iron ore demand, especially for higher grades.
Like the benchmark, both lower and higher grades rallied on Monday.
58% fines added 2.2% to $40.93 a tonne while ore with 65% Fe content rose 3% to $89.10 a tonne.
The solid gains in spot markets followed another breakneck rally in Chinese bulk commodity futures on Monday, adding to the substantial gains achieved during Friday’s night session.
Dalian iron ore futures closed up 7.1% at 536 yuan a tonne.
Coking coal futures — another key steel input — went one better, closing limit up 8% at 1,350.50 yuan a tonne. Put another way, the only thing preventing further gains during the session was exchange rules preventing it.
Underpinning those enormous gains, rebar futures traded separately in Shanghai also edged higher, closing up 1.8% at 3,874 yuan a tonne.
Market participants put the whirlwind rally down to optimism that Chinese steel production will lift substantially early next year as output curbs scheduled to end in mid-March are lifted by regulators, helping to boost demand for iron ore and coking coal.
“Steel mills will eventually resume output after March, so they did some restocking given they are still making a high profit,” Jin Tao, an analyst with Guotai Jun‘an Futures in Shanghai, told Reuters.
News that new home prices in smaller Chinese cities continued to lift in November was another factor that helped to lift sentiment, particularly following a rebound in new housing starts and sales reported in separate data released last week.
Smaller centres account for the bulk of new residential construction activity in China.
Suggesting that the rally in spot markets may pause for breath today after a frenetic start to the week, rebar and iron ore futures trimmed their day session gains in overnight trade.
SHFE Rebar ¥3,843 , -0.34%
DCE Iron Ore ¥535.50 , 2.10%
DCE Coking Coal ¥1,373.50 , 5.13%
DCE Coke ¥2,137.50 , 1.14%
Although only a small pullback, it points to the likelihood that iron ore spot markets may ease a touch should the overnight moves continue today.
Trade in Chinese commodity futures will resume at midday AEDT.