Iron ore spot markets exploded higher on Monday, logging the largest gain in three months.
And with futures markets up again in overnight trade, it looks like there may be more to come.
According to Metal Bulletin, the price for benchmark 62% fines surged 5.8% to $63.36 a tonne, its largest one-day percentage increase since July 31.
As a result of that gain, it now stands at the highest level since September 27.
Like the benchmark, both lower and higher grades screeched higher during the session.
58% fines jumped 6.4% to $36.74 a tonne, an abrupt spike higher having fallen to the lowest levels since December 2015 last week.
Higher grades also rose, albeit to a lesser margin, with ore with 65% Fe content adding 3.9% to $83.30 a tonne.
The bounce in spot markets followed an equally-large gain in Chinese futures earlier in the session. Iron ore futures in Dalian jumped 6.1% to 468 yuan, garnering support from a jump in rebar futures in Shanghai which rose 2.9% to 3,736 yuan.
Coking coal and coke futures also logged gains of more than 2.5%.
As for the reason behind the surge in spot and futures markets, there was no clear catalyst to explain the size of the move.
Some put the bounce down to growing optimism that demand for iron ore and coking coal will surge in early 2018 when restrictions on Chinese steel production during winter months are lifted. However, only a few days ago that was seen as a negative for prices, reducing demand in the near-term.
News that Hebei province, a major steel producer in China, had eliminated more steel production capacity this year than initially planned was another factor cited to explain the strength in steel prices. However, capacity closures have been ongoing for several years and aren’t exactly new news.
Given Chinese iron ore and coking coal futures fell over 30% from mid-August to early November, the move in spot markets could merely be due to profit-taking in futures. Indeed, the inability of futures to push lower last week — despite trying and failing on several occasions — provided a clue that momentum to the downside was weakening after such a substantial and prolonged move.
With many investors short, that may explain the size of the move seen on Monday.
Continuing the form of the day session, iron ore, coking coal and coke futures continued to gain in overnight trade.
Here’s the final scoreboard from Monday’s night session.
SHFE Rebar ¥3,724 , 1.00%
DCE Iron Ore ¥471.00 , 3.63%
DCE Coking Coal ¥1,176.50 , 1.91%
DCE Coke ¥1,839.50 , 4.19%
With the exception of rebar futures, all other contracts finished higher than Monday’s day session close.
Trade in Chinese commodity futures will resume at midday AEDT.