Chinese iron ore futures rip higher as regulators slash trading fees

Photo: Scott Gries/Getty Images

It was a quiet session for iron ore spot markets on Tuesday, but with Chinese futures continuing to rip higher in overnight trade, it’s debatable whether that will remain the case today.

After rallying on Monday, spot prices finished mixed.

The price for benchmark 62% fines dipped 0.14% to $88.14 a tonne, according to Metal Bulletin. Lower grades went the other way with the price for 58% fines rising 0.52% to $60.41 a tonne.

The lacklustre performance came despite the release of major economic data in China, including industrial output and property investment figures for the first two months of the year.

According to China’s National Bureau of Statistic (NBS), crude steel output rose by 5.8% to 128.77 million tonnes in January-February compared to a year earlier.

Investment in real estate jumped by 8.9% from a year earlier, a noticeable pick-up on the levels seen in late 2016. The NBS said that construction starts and sales by floor space grew by 10.4% and 25.1% respectively from the first two months of 2016.

While not enough to inspire further buying in spot markets on Tuesday, that didn’t stop futures traders from continuing to bid up prices overnight.

But it was not data, but continued speculation, that drove the move.

The May 2017 iron ore future surged by a further 3.64% to 712 yuan on the Dalian Commodities Exchange, continuing the rapid recovery from the lows struck late last week. It has now added 11.5% from the lows of last Friday’s overnight session.

The move also came despite far smaller increases in rebar and coal contracts over the same period.

SHFE Copper ¥47,510 , 0.32%
SHFE Aluminium ¥13,710 , -0.36%
SHFE Zinc ¥22,645 , 0.58%
SHFE Nickel ¥84,990 , 0.47%
SHFE Rebar ¥3,597 , 0.33%
DCE Iron Ore ¥712.00 , 3.64%
DCE Coking Coal ¥1,314.50 , 0.34%
DCE Coke ¥1,865.50 , 1.17%

Helping to explain iron ore’s outperformance, the Dalian Commodity Exchange said in a statement that it will slash transaction fees for near-month iron ore contracts between May and July, aimed to boost liquidity and encourage more industrial players to participate in the market.

In a trial move, the exchange will charge only 10% of the transaction fees previously assessed by the exchange for some contracts during May 2 and July 31, said Reuters.

Given the scale of the gains in recent days, it looks like it has only encouraged more speculators — which there are already many — to bid prices even higher.

Trade in Chinese commodity futures will resume at midday AEDT.

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