Iron ore spot markets exploded higher on Tuesday, logging the largest one-day gain in over four months.
And with Chinese futures holding much of its earlier session gains overnight, it suggests the bounce may well continue on Wednesday.
According to Metal Bulletin, the spot price for benchmark 62% fines soared 5.2% to $59.70 a tonne, marking its largest one-day percentage increase since February 13 this year.
The benchmark has now gained in eight of the past nine sessions, adding 11.9% in the process.
Both higher and lower grade ores also jumped during the session.
The price for Brazilian ore with 65% Fe content rose 3.6% to $74.70, while the price of 58% fines increased by a smaller 2.7% to $40.14.
Making the gains all the more remarkable, the surge in buying interest followed news that Chinese iron ore port inventories rose to a record high of 141.45 million tonnes last week, according to data from Shanghai Steelhome.
The gains in spot markets followed renewed strength in Chinese futures earlier in the session.
After treading water earlier in the day, Dalian iron ore futures rocketed higher into the close, finishing the session up close to 6%. Open interest in the September 2017 contract rose by 20% from a day earlier, indicating the scale of the buying frenzy.
There were also solid gains recorded in rebar, coking coal and coke futures during the session, hinting that the move in iron ore was more to do with the outlook for steel prices rather than for its inputs.
That may be explained by a speech delivered by Chinese premier Li Keqiang earlier in the port city of Dalian in which he discussed eliminating excess capacity from China’s steel and coal industries.
Remarks in relation to shuttering excess capacity have acted to spur on gains in steel and bulk commodity prices in the past, and most of the gains in Chinese commodity futures occurred after Li’s speech concluded.
“High steel margins after the government’s effort to eliminate low-grade steel are enticing mills to produce more steel, which increases the need for iron ore,” Zou Mingdong, a Shanghai-based steel manager at Zhongcai Merchants Investment Group, told Reuters.
And after stirring spot markets from their slumber on Tuesday, Chinese commodity futures continued to push higher in overnight trade, suggesting that gains in spot markets may follow suit today.
Here’s the final scoreboard from overnight.
SHFE Rebar ¥3,267 , 2.96%
DCE Iron Ore ¥458.00 , 3.27%
DCE Coking Coal ¥1,045.00 , 1.51%
DCE Coke ¥1,686.50 , 2.34%
Iron ore and rebar futures closed Tuesday’s day session at 456.5 yuan and 3,224 yuan respectively.
Trade in Chinese commodity futures will resume at 11am AEST.