Iron ore markets have suddenly jumped

Kris Kross gonna make you.. Jeff Kravitz/FilmMagic, Inc

Iron ore markets ripped higher on Friday, mirroring a similar move in Chinese steel prices.

According to Metal Bulletin, the spot price for benchmark 62% fines jumped 2.1% to $74.39 a tonne, leaving it at the highest level since January 26.

Friday’s gain also helped to snap a five session losing streak in the process.

Like the benchmark, prices for higher grades also ripped higher during the session.

Ore with 65% Fe content added 1.8%, closing the session at $90 a tonne.

In comparison, 58% fines fell 0.3% to $41.97 a tonne, ending a notable run of strength.

The gains in spot markets coincided with strength in Chinese steel futures, fuelled by speculation that policymakers may extend production curbs scheduled to end on March 15.

Rebar futures in Shanghai closed up 0.5% at 3,561 yuan a tonne, up more than 200 yuan a tonne from levels see earlier in January.

“Chinese steel futures ticked higher on Friday amid news that Tangshan, China’s top steelmaking city, is looking at extending production curbs beyond winter, even as the government of the province where it is located said it had no such plans,” said Reuters, citing three sources familiar with the matter.

That may explain the divergence in iron ore spot markets on Friday with strength in steel prices encouraging mills to obtain more efficient higher grade ore during the session.

Despite the threat posed by an extension of steel production curbs, iron ore futures in Dalian rallied, closing up 1.1% at 513.5 yuan a tonne.

“I think it was just a technical recovery,” an iron ore trader in Shanghai told Reuters. “We should see prices under pressure again as we’re getting close to the holidays and trading activity will slow down.”

The trader told Reuters that many workers in China began returning home this week ahead of the week-long Lunar New Year holiday that begins on February 15.

“We heard many mills in Tangshan are running at half their capacity and are starting to be on skeletal workforce,” he said.

A rebuke from the Hebei government — where Tangshan is located — that steel production cuts will be extended my also explain the bounce seen during the session.

As seen in the scoreboard below, while rebar futures weakened late on Friday, iron ore contracts continued to push higher.

SHFE Rebar ¥3,926 , -0.58%
DCE Iron Ore ¥516.00 , 0.49%
DCE Coking Coal ¥1,334.50 , 1.60%
DCE Coke ¥2,051.50 , 1.16%

The mixed performance provides no clear indication as to whether the gains in iron ore spot and futures markets will extend into a second session today.

Trade in all Chinese commodity contracts will resume at midday AEDT.

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