- Iron ore spot markets went hard into reverse on Friday.
- The move followed a sharp and sudden drop in futures markets, likely driven by increased speculative activity.
- Futures markets finished mixed on Friday evening, proving few clues as to what direction spot markets will move today.
Iron ore spot markets went hard into reverse on Friday, giving back much of the gains achieved a session earlier.
According to Metal Bulletin, the price for benchmark 62% fines skidded 2% to $67.06 a tonne, snapping a three-day, 7.1% rally in the the process.
Large losses were also seen across higher and lower grades.
58% and 65% fines both fell 1.8%, settling at $39.68 and $84.90 a tonne respectively.
The outperformance of lower grade ores on Friday, continuing the pattern seen earlier in the week, likely reflects lower steel mill profit margins, said analysts at UBS.
“China’s steel spreads lifted last week but remain down on levels a month or two earlier. This, combined with slowly ramping blast furnace output post winter has seen mill preference for low grade Fe lift and low grade discounts narrow to below 40%,” it said.
“The multi-week down trend in steel spreads could see low grade iron ore discounts narrow further.”
The large reversal in spot markets mirrored similar moves in Chinese rebar and iron ore futures which fell heavily after soaring to fresh multi-week highs a session earlier.
Iron ore futures in Dalian finished Friday’s day session at 461 yuan a tonne, well below the 475 yuan a tonne level it closed Thursday’s day session.
It was a similar story for rebar futures in Shanghai which closed at 3,487 yuan a tonne, well off the 3,516 yuan a tonne level of a session earlier.
Some put the wild price action down to an increase in speculative activity in both contracts.
“The market is being moved by speculative money,” an unnamed trader in Shanghai told Reuters. “Many traders who used to invest in rebar have shifted to raw materials.”
Providing few clues as to whether the skittish price action will continue today, Chinese futures did very little in overnight trade on Friday.
SHFE Rebar ¥3,461 , -0.40%
DCE Iron Ore ¥464.00 , -0.64%
Rebar futures lost ground while iron ore futures inched higher, providing no clean read on what direction spot markets may do today.
Trade in Chinese commodity futures will resume at 11am AEST.
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