Recent movements in iron ore prices are akin to snakes and ladders. Wild, knee-jerk reactions in either direction, seemingly in a random fashion.
Well, after six consecutive declines, spot prices landed on a ladder square on Thursday, ripping higher in line with another ridiculous rally in Dalian futures.
After seeing the most actively traded September 2016 contract in Dalian close with a gain of 5.67% — just shy of hitting “limit up” for the session — the spot price for benchmark 62% fines surged by 2.55% to $57.17 a tonne, according to Metal Bulletin.
The increase, leaving the price at four-day high, extended the gains seen so far this year to 31.2%.
According to both Metal Bulletin and the Steel Index, activity in physical markets was quiet, indicating that the surge in spot price was driven by a rebound in Chinese steel futures.
Reuters notes that Chinese futures rose three straight days of losses, lifted by a spike in spot prices and supported by a technical correction.
Spot prices of some steel products in a key producing region of Tangshan in northern China rose by 80 yuan, said Reuters.
Tangshan is due to commemorate the anniversary of a powerful earthquake that struck the city later in the month, with local government authorities ordering heavy industry — including steel smelters — to curb or halt production ahead of the event.
These restrictions are already coming into effect, and have been responsible for other wild price gains in steel, iron ore and coking coal prices in prior years.
Despite this being known for weeks, it wouldn’t be a surprise if this was once again a factor that drove the sudden increase.
In overnight trade, Dalian iron ore futures closed up 2.08% at 442 yuan, well below the 5.67% gain registered during Thursday’s day session.
Trade in Dalian will resume at 11am AEST. If the price movements seen earlier this week are anything to go by, trade is likely to be wild.