Iron ore prices bounce as the 'everything rally' rolls on

Photo: Henrik Berger Jørgensen/ Flickr.
  • Iron ore spot markets rose on Monday, reversing losses seen on Friday. The increase in lower grade ores was the largest in four months.
  • Buying in spot and futures markets was fuelled by optimism over a temporary trade truce struck between the United States and China last weekend.
  • Chinese futures consolidated upon the moves seen on Monday in overnight trade. However, like many risk assets, they failed to sustain or build upon gains struck earlier in the session.

Iron ore spot markets rose on Monday, largely reversing the moves seen on Friday.

According to Metal Bulletin, the price for benchmark 62% fines rose 0.7% to $66.38 a tonne, logging its fourth gain in the past five sessions.

The price of 65% Brazilian fines also increased by 0.7%, settling at $82.90 a tonne.

The big move during the session came from lower grade ore with the price for 58% fines surging 3.9% to $42.19 a tonne. It was the largest percentage gain in four months.

Like most assets in China on Monday, the lift in spot markets was fuelled by optimism over a temporary trade truce struck between the United States and China on the sidelines of the G20 summit in Argentina last weekend.

Futures traders were certainly optimistic, buying Chinese steel and bulk commodity contracts aggressively upon the resumption of trade. However, mirroring the price action in so many risk assets on Monday, initial gains were gradually trimmed towards the close.

Those moves were consolidated upon in overnight trade on Monday.

SHFE Hot Rolled Coil ¥3,550 , 0.60%
SHFE Rebar ¥3,705 , 0.54%
DCE Iron Ore ¥496.00 , 0.81%
DCE Coking Coal ¥1,379.50 , 0.99%
DCE Coke ¥2,237.00 , 1.64%

Rebar and hot-rolled coil futures finished at 3,705 and 3,550 yuan respectively, up from Friday’s night session close of 3,607 and 3,474 yuan.

Iron ore, coking coal and coke contracts also pushed higher, lifting to 496, 1,379.5 and 2,237 yuan respectively, up from 487, 1,362.5 and 2,187.5 yuan on Friday evening.

All five contracts had traded significantly higher earlier in the day.

While solid moves, some expressed concern that they were powered by short covering rather than fundamentals.

“Steel output is still pretty high and there has been no stimulus from the government to boost demand,” Zhuo Guiqiu, an analyst with Jinrui Futures, told Reuters.

Partially reflecting the impact of production curbs to improve air quality in northern Chinese provinces over winter, utilisation rates at Chinese steel mills continued to slide last week, falling 0.83 percentage points to 66.71%, according to data from Mysteel Consultancy.

While higher than the levels of a year ago, reduced steel output will naturally limit demand for raw ingredients, including iron ore. With Chinese steel mill profitability also coming under pressure, that too may temper demand.

Trade in Chinese futures will resume at midday AEDT.

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