Iron ore is bouncing

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Iron ore spot markets jumped on Friday, gaining on the back of firmer steel prices in China.

According to Metal Bulletin, the price for benchmark 62% fines soared 2.5% to $76.75 a tonne, the largest percentage gain since January 2.

After rising 0.5% on Thursday, the large increase trimmed its weekly loss to 1.7%.

The strong rally in the benchmark was mirrored across the board, particularly in lower grades.

58% fines jumped 3.3% to $42.87 a tonne. In comparison, ore with 65% Fe content added a smaller 0.9%, closing the session at $90.80 a tonne.

Contributing to the substantial move across spot markets, Chinese rebar and iron ore futures also rallied hard during the session.

The May 2018 rebar contract in Shanghai rose 2.2% to 3,926 yuan a tonne. That helped to boost iron ore futures in Dalian which closed up 1.6% at 543.5 yuan a tonne.

The move followed the release of Chinese crude steel production figures for December late on Thursday.

From December 2016, and despite curbs to help improve air quality in northern provinces, steel production rose 1.8% to 67.05 million over the year. That left total production in 2017 at 831.73 million tonnes, up 5.7% from 2016.

The closure of illegal mills as part of the Chinese governments push to remove spare capacity in the sector may have contributed to the annual gain in official numbers.

After jumping solidly during Friday’s day session, Chinese rebar and iron ore futures continued to push higher on Friday evening.

SHFE Rebar ¥3,963 , 2.06%
DCE Iron Ore ¥545.00 , 1.49%
DCE Coking Coal ¥1,296.00 , 1.37%
DCE Coke ¥2,021.50 , 2.77%

The gains suggest that the rally seen over the past two days may extend into a third session on Monday.

Trade will resume at midday AEDT.

However, while prices are now rebounding following a string of large losses early last week, analysts at Macquarie don’t expect the strength will last.

“Our Chinese steel survey reported the first monthly decline in domestic orders since June 2017,” the bank says.

“Widening port discounts and the reversing of steel mills’ margins point to weakening real demand for iron ore as we head into the quiet period of Chinese New Year.

“Inventory indicators suggest that the pre-holiday restocking is now largely complete.

“We expect the iron ore price to retreat in the short term.”

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