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Iron ore is getting smoked again

JUSTIN TALLIS / AFP / Getty Images

Iron ore spot markets were hammered on Wednesday, logging the largest decline since late September.

And with Chinese futures down again in overnight trade, it looks like the price slide may continue on Thursday.

According to Metal Bulletin, the price for benchmark 62% fines tumbled 3.4% to $69.36 a tonne, its largest one-day percentage decline since September 22. It was also the first time since mid-November that back-to-back declines have been reported.

“This caution was likely caused by another large rise in inventories,” said analysts at ANZ Bank.

“Chinese ports are now holding 127.3 million tonnes, up 1.2 million tonnes last week, according to Antaike.

“Ongoing chatter about curbs on the real estate market and the steel industry also played their part in the negative tone in the market.”

The weakness in the benchmark was mirrored across all grades, especially in less efficient lower grades.

The price for 58% fines was smoked, losing 5.8% to $38.67 a tonne. In comparison, higher grades fared better. Ore with 65% Fe content fell by a smaller 1.9% to $86.60 a tonne.

Mid- and higher grades have outperformed lower grades in recent months as a push from Chinese policymakers to improve air quality in northern regions during winter has seen wide-scale capacity cuts enforced for Chinese steel mills.

These restrictions have seen mill favour higher grade ores, more efficient in the steel production process than lower grades. The production cuts are scheduled to run through to mid-March 2018.

The sharp plunge in spot markets on Wednesday followed an equally large downside move in Chinese futures with iron ore and rebar contracts continuing to unwind after surging to fresh multi-month highs earlier in the week.

Iron ore futures in Dalian were hammered, closing Wednesday’s day session at 523 yuan a tonne, a decline of 4%. That move followed an equally large plunge in rebar futures which closed down 3.3% at 3,916 yuan per tonne.

Movements in steel prices are often influential on the prices for raw materials such as iron ore and coking coal. The sharp falls in these contracts also coincided with broad-based weakness in base metals futures on Wednesday.

As seen in the scoreboard from Wednesday’s night session below, there was no let up in the selling pressure in overnight trade.

SHFE Rebar ¥3,917 , -0.99%
DCE Iron Ore ¥520.50 , -2.62%
DCE Coking Coal ¥1,331.00 , -2.02%
DCE Coke ¥2,140.50 , -1.92%

Both rebar and iron ore contracts finished around the same levels as Wednesday’s day session close.

Trade in Chinese commodity futures will resume at midday AEDT.

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