Iron ore just logged its largest gain in months

Photo by Will Russell/AFL Media/Getty Images

Iron ore spot markets ripped higher on Friday, logging the largest gain seen in months.

And with futures soaring during Friday’s night session, it looks like there may be further gains to come today.

According to Metal Bulletin, the price for benchmark 62% fines jumped by 4.1% to $62.53 a tonne, continuing to recover having fallen to a more than three-month low on Wednesday.

In percentage terms, it was the largest one-day gain since July 31.

Like the benchmark, both higher and lower grade ores also gained for the session.

Ore with 65% Fe content rose 3.3% to $85.70 a tonne, outpaced by an even larger 5% gain in the price of 58% fines which settled at $37.05 a tonne.

The gains in spot markets mirrored equally-large gains in futures markets earlier in the session, driven higher by news that some Chinese cities had began to implement steel production curbs earlier than expected.

“The market is still driven by production cuts amid Beijing’s push to fight smog as we see some cities have implemented output curbs one month ahead of the plan,” Yu Yang, analyst at Shenyin and Wanguo Futures in Shanghai, told Reuters.

“So when steel prices rise, mills have bumper profits and this has driven up raw materials too.”

Curiously, the selloff in bulk commodities in recent weeks was pinned on steel production curbs limiting demand for iron ore and coking coal, two key ingredients in the steel-making process.

Suddenly, that mindset has been turned on its head with healthy margins deemed to be encouraging steel mills to lift production levels ahead of planned production cuts beginning in mid-November.

The about-face could be due to still-high levels of speculative activity in futures markets.

The January 2018 rebar contract in Shanghai rallied 6.6% to 3,815 yuan during Friday’s day session, helping to drag iron ore and coking coal futures along for the ride.

Iron ore jumped 5.1% to 455.5 yuan while coking coal soared 7.5% to 1,196.5 yuan, responding to the lift in steel prices during the session.

The rally in iron ore came despite news that Chinese iron ore imports surged to the highest level on record in September.

Imports of iron ore rose 10.6% year-on-year in September to breach 100 million tonnes for the first time on record. At the same time, inventories fell,” said analysts at ANZ Bank.

“This saw a pickup in investor appetite, with futures trading on Singapore and Dalian Exchanges surging higher.”

And, as can be seen in the scoreboard below, rebar and iron ore futures continued to rally during Friday’s night session, pointing to the likelihood that there may be further gains in spot markets should those moves be sustained today.

SHFE Rebar ¥3,849 , 3.52%
DCE Iron Ore ¥468.50 , 5.04%
DCE Coking Coal ¥1,196.50 , 2.84%
DCE Coke ¥1,960.00 , 5.97%

Trade in Chinese commodity futures will resume at midday AEDT, 30 minutes before the release of Chinese consumer and producer price inflation figures for September.

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