Iron ore escaped the carnage seen in other commodity markets

Luan Zhengxi/VCG via Getty Images
  • Iron ore markets managed to escape the worst of the selling pressure seen in other commodity markets on Wednesday.
  • Rebar futures surged to a fresh multi-year high overnight, helping to support bulk commodity contracts.
  • Temporary steel production cuts in China have been cited as the catalyst behind the move. Speculation that China could look to pump-prime its economy given the deteriorating external environment may also be in the price action.

Iron ore spot markets came under pressure on Wednesday as trade fears flared again.

However, in comparison to the losses seen in other markets, especially commodities, it managed to escape the worst of the selling pressure.

The spot price for benchmark 62% fines skidded 0.9% to $63.34 a tonne, according to Metal Bulletin, pushing back towards the multi-month low of $63.14 a tonne struck last week.

A breach of $63.12 a tonne for the benchmark would leave it sitting at the lowest level since November 2017.

In contrast to the benchmark, the losses in lower and higher grades were substantially smaller.

The price of 58% fines fell 0.1% to $37.26 a tonne while 65% fines lost 0.2% to settle at $90.80 a tonne.

The resilient performance coincided with continued strength in Chinese steel prices, helping to cushion the fall in bulk commodity prices compared to those seen in base and precious metals.

Rebar futures in Shanghai finished trade at 3,879 yuan, just 10 yuan off Tuesday’s night session close.

Traders put the ongoing strength down to temporary steel production cuts introduced in Tangshan, a major steel-making city in China.

With steel prices holding steady, it helped to lift Dalian iron ore futures which recovered after stumbling earlier in the session.

The September 2018 contract finished trade at 463.5 yuan, up from Tuesday’s night session close of 458 yuan a tonne.

Coking coal and coke futures were also immune to the selloff in other commodities, finishing at 1,146 yuan and 2,024.5 yuan respectively, largely unchanged from the previous close.

That resilience continued in overnight trade with rebar futures storming to a fresh multi-year high during the session.

SHFE Rebar ¥3,944 , 1.91%
DCE Iron Ore ¥463.00 , 1.42%
DCE Coking Coal ¥1,160.00 , 2.43%
DCE Coke ¥2,072.00 , 2.63%

Despite the strength in steel prices, and a rally in other bulk commodity contracts, iron ore futures were largely unchanged for the session.

While temporary capacity cuts to steel production have helped to push prices higher, with the trade war with the United States escalating by the day, one suspects that speculation that policymakers may step in to shore up domestic economic activity may also be in the price.

As has been seen countless times before, when the external environment deteriorates, China has no qualms about turning to property and infrastructure construction to support economic activity.

Trade in Chinese futures will resume at 11am AEST.

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