Iron ore markets finish mixed as steel prices stabilise

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  • Iron ore spot markets closed mixed on Friday with mid and higher grades pushing higher while lower grades fell.
  • Chinese rebar futures fell for an eighth consecutive session, continuing to pull back from multi-year highs struck a week earlier.
  • Chinese futures finished flat-to-higher on Friday evening. IHS Markit’s China manufacturing PMI for August will be released today.

Iron ore spot markets diverged on Friday with mid and higher grades pushing higher while lower grades continued to slide.

According to Metal Bulletin, the price for benchmark 62% fines rose 0.7% to $66.34 a tonne, partially recovering after tumbling 2.2% on Thursday.

In August, the benchmark lost 2.7%.

Higher grades also advanced with price for 65% fines rising 0.2% to $94.70 a tonne.

In contrast, lower grades continued to lag with the price for 58% fines sliding 0.5% to $36.09 a tonne.

The strength in mid and higher grades came despite a further slide in Chinese steel futures on Friday with the January 2019 rebar contract on the Shanghai Futures Exchange finishing the day session at 4,086 yuan, down from Thursday’s night session close of 4,117 yuan.

It was the eighth consecutive session that rebar futures closed lower, continuing to pull back from a multi-year of 4,418 yuan struck a week earlier.

The weakness in rebar futures weighed on bulk commodity contracts traded separately in Dalian with iron ore, coking coal and coke all finishing below Thursday’s night session close.

The January 2019 iron ore contract finished trade at 485 yuan, down marginally from Thursday’s night session close of 48.5 yuan.

Coking coal and coke prices also eased, finishing trade at 1,248 and 2,426 yuan respectively.

The soft performance came despite the release of official manufacturing and non-manufacturing PMI reports from the Chinese government which both beat market expectations, surprisingly.

Sentiment may have been negatively impacted by news that Chinese rebar inventories held by traders rose to 4.12 million tonnes last week, according to data from Mysteel consultancy, up 11,100 tonnes from one week earlier.

Separate data on activity levels in China’s steel sector in August also underwhelmed with the government’s steel PMI falling to 53.4 from 54.8 in July.

A reading above 50 indicates that activity levels improved from a month earlier. The distance away from 50 reflects the speed of the improvement.

Hinting that weakness in steel prices may have run its course, at least in the short-term, Chinese rebar futures bounced on Friday evening, helping to support coking coal and coke contracts in Dalian.

However, after outperforming in the latter parts of last week, that wasn’t enough to help iron ore futures which closed marginally lower.

Here’s the final scoreboard from Friday’s night session.

SHFE Rebar ¥4,104 , 0.20%
DCE Iron Ore ¥484.00 , -0.72%
DCE Coking Coal ¥1,253.50 , 0.32%
DCE Coke ¥2,440.50 , 0.21%

Trade in Chinese commodity futures will resume at 11am AEST, 45 minutes before the release of IHS Markit’s China manufacturing PMI report for August.

Compared to the government’s PMI reports, this tends to derive a greater reaction in financial markets.

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