It's suddenly looking ugly in iron ore markets

Jack Taylor/Getty Images
  • Iron ore spot markets fell heavily across the board on Tuesday.
  • Chinese steel futures were hammered on concerns over a potential glut forming in the months ahead.
  • Futures markets were smoked again on Tuesday evening, pointing to a nasty start to trade in spot and physical markets on Wednesday.

Iron ore spot markets were hammered on Tuesday, falling heavily across the board.

And with Chinese steel and bulk commodity futures tumbling in overnight trade, it looks like the move may not be over.

According to Metal Bulletin, the spot price for benchmark 62% fines tumbled 1.9% to $74.65 a tonne, leaving it at the lowest level since November 2.

Lower grade orders were also slammed with 58% fines sliding 1.7% to $44.84 a tonne.

In contrast to the performance seen in recent trade, higher grade ore actually outperformed with 65% Brazilian fines falling 0.4% to $92.60 a tonne. However, it now sits at a five-month low.

The relatively small declines in higher grade ore came despite another bloodbath in Chinese steel futures during Tuesday’s day session.

Rebar futures in Shanghai skidded to 3,742 yuan, down heavily from Monday’s night session close to 3,841 yuan. Hot-rolled coil futures were also under pressure, falling to 3,571 yuan, down from 3,605 yuan on Monday evening.

According to data from Mysteel Consultancy, weekly utilisation rates at Chinese steel mills rose 0.14 percentage points to 67.82% last week, adding to the improvements seen in early November.

Ahead of what is traditionally a period of weak steel demand in China, continued strength in steel output has raised concern about a potential glut forming in the months ahead.

“The controversy of high output has not been solved, while demand is expected to weaken in the future. That makes physical prices face increasing pressure to plunge further, dragging down near-month future contracts,” analysts from CITIC Futures in a note in Mandarin, according to Reuters.

Unlike Monday where speculation that Chinese steel output restrictions in the coming months may not be as severe as first thought, helping to support iron ore futures and spot markets on renewed demand hopes, there was no such reaction on Tuesday with the most actively traded January 2019 contract sliding to 516.5 yuan, down from 525.5 yuan on Monday evening.

Coking coal and coke contracts were also under pressure, falling to 1,371.5 and 2,303.5 yuan respectively, down from Monday’s night session close of 1,372.5 and 2,338.5 yuan.

Suggesting the moves in spot markets are likely to extend today, all five contracts were smoked on Tuesday evening.

SHFE Hot Rolled Coil ¥3,523 , -1.98%
SHFE Rebar ¥3,646 , -4.05%
DCE Iron Ore ¥505.00 , -2.88%
DCE Coking Coal ¥1,348.00 , -1.57%
DCE Coke ¥2,228.50 , -4.15%

The large and broad losses points to an ugly start for spot and physical markets on Wednesday.

Trade in Chinese commodity futures will resume at midday AEDT.

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