Iron ore prices continue to compress

Marty Melville / AFP / Getty Images
  • The price spread between lower and higher grade iron ore narrowed to multi-year lows on Tuesday.
  • 58% fines rose by close to 1%, leaving it at fresh five-year highs. It’s now gained 101% since late November.
  • Chinese steel and iron ore futures have back earlier gains on Tuesday to close the session lower. That move was extended during Tuesday’s night session.

The spread between lower and higher grade iron ore prices continued to narrow on Tuesday, declining to levels not seen in several years.

According to Metal Bulletin, the spot price for 58% fines rose by 0.9% to $79.95 a tonne, extending its rally since late November last year to 101%. It now sits at the highest level since August 2014.

While lower grades continued to gain, the price for benchmark 62% iron ore fines slipped marginally, dipping to $94.85 a tonne, down 0.5% from Monday’s five-year high of $95.30 a tonne.

Higher grades ore added to the mixed performance seen during the session with 65% fines inching up 0.2% to $106.50 a tonne, leaving it at fresh two-year highs.

With prices for lower grades continuing to charge higher, the price discount for 58% fines to the benchmark narrowed to levels not seen since April 2016. It’s discount to 65% fines also fell to lows not seen since July 2016.

The narrowing in price discount for lower grade ore reflects a number of factors, including reduced Chinese steel mill profitability, a relaxation of environmental curbs on industrial activity in norther China over the northern hemisphere winter along with concerns about supply disruptions from Brazil and Australia, much of which is mid and higher grades.

The mixed performance in spot markets came despite a large reversal in Dalian iron ore futures during Tuesday’s day session.

The May 2019 contract finished at 706.5 yuan, down from Monday’s night session close of 716 yuan. It briefly hit 720 yuan earlier in the session, marking a fresh record high.

Steel futures in Shanghai followed a similar pattern, lifting in early trade before pulling back towards the close. Rebar and hot-rolled coil finished trade at 3,757 and 3,941 yuan respectively.

Hinting that further weakness may arrive in physical markets on Wednesday, both steel and iron ore futures lost further ground in overnight trade, albeit the declines were fairly modest in scale.

Dalian iron ore futures finished the session at 703.5 yuan.

Trade in Chinese commodity futures will resume at 11am AEST.

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.