Iron ore has surged to a 5-week high

Photo by Yuli Seperi/Getty Images

Iron ore spot markets ripped higher yet again on Wednesday, continuing the bullish price action of a day earlier.

And with Chinese futures soaring again in overnight trade, there’s a prospect that we may see a hat-trick of substantial gains on Thursday. Markets will be watching futures closely when they reopen for trade later this morning to see if that’s likely.

According to Metal Bulletin, the price for benchmark 62% fines soared by another 4.4% to $62.33 a tonne, leaving it sitting at the highest level since May 22.

In the past two sessions alone it has added 10%, extending its gains from the one-year low of $53.36 a tonne struck on June 13 to 16.8%.

Both higher and lower grade ores also surged higher, particularly for lower grades.

The price for 58% fines soared 5.1% to $42.20 a tonne, while Brazilian ore with 65% Fe content added 4.8% to $78.30 a tonne.

As shown in the chart below, what started as a modest bounce has grown into a rollicking rally in recent days.

Vivek Dhar, mining and energy commodities analyst at the Commonwealth Bank, said the move was driven by continued optimism stemming from a speech delivered by Chinese premier Li Keqiang on Monday, along with high steel mill margins encouraging strong production levels and, as a consequence, increased demand for iron ore.

“Elevated steel mill margins and abundant spare capacity should provide the impetus for a short-term rally in iron ore prices,” he says.

Daniel Hynes, commodity strategist at ANZ, shares a similar view to Dhar.

“We’re not expecting to see a full-blown rally from here, but something in the low $60’s looks reasonable over the next few months,” he told Reuters.

While fundamental factors have no doubt contributed partially to the recent spurt in buying, it’s clear that speculative forces have also played a role.

Indeed, open interest in the September 2017 iron ore futures contract on the Dalian Commodities Exchange jumped by a further 15% to 2.68 million lots on Wednesday, the highest level on record.

A late rally in futures markets on Tuesday kicked off the latest buying spree seen across spot markets.

And that form in futures continued overnight with iron ore continuing to rip higher.

Here’s the final scoreboard from the night session.

SHFE Rebar ¥3,270 , 0.37%
DCE Iron Ore ¥464.00 , 1.64%
DCE Coking Coal ¥1,094.00 , 4.14%
DCE Coke ¥1,710.00 , 1.79%

The September iron ore futures contract finished trade at its highest level since May 24, extending the gains of the day session when it closed at 457.5 yuan per tonne.

Trade in Chinese futures will resume at 11am AEST.

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