Iron ore wobbles as speculators move to the sidelines

Zhang Yao/CHINA NEWS SERVICE/Getty Images
  • Iron ore markets finished mixed on Wednesday. The benchmark inched up while higher and lower grades fell.
  • Dalian iron ore future were wild following the introduction of higher transactions fees designed to curb speculative activity.
  • Morgan Stanley says the days of soaring iron ore prices are numbered.

Iron ore markets finished mixed on Wednesday.

According to Metal Bulletin, the price for benchmark 62% fines rose 0.1% to $106.18 a tonne. In contrast, lower and higher grades declined. 58% and 65% fines slipped 0.4% and 0.3% respectively, settling at $90.99 and $121.20 a tonne.

The mixed and modest price movements in physical markets were in stark contrast to the wild swings seen in futures during the session.

The most actively traded September 2019 iron ore contract in Dalian slumped to as low as 731.5 yuan before rebounding to close at 748 yuan. It hit a record high of 774.5 yuan on Tuesday.

Attempts to curb speculative activity in futures likely contributed to the lift in volatility seen on Wednesday.

In a statement released on Tuesday, the Dalian Commodities Exchange said that it would increase transaction fees on some futures contracts, including iron ore, from May 30.

“That is a way to curb speculation,” Helen Lau, metals and mining analyst at Argonaut Securities, told Reuters.

Outside of iron ore futures, the movements in steel and other bulk commodity contracts were limited.

Rebar and hot-rolled coil futures in Shanghai inched up to 3,825 and 3,670 yuan, up from 3,824 and 3,656 yuan on Tuesday evening.

Coking coal and coke contracts in Dalian went their separate directions. The former rose to 1,391.5 yuan while the latter slipped to 2,222 yuan.

Continuing the theme seen earlier in the day, futures finished mixed in overnight trade on Wednesday.

SHFE Hot Rolled Coil ¥3,663 , 0.08%
SHFE Rebar ¥3,812 , -0.16%
DCE Iron Ore ¥740.00 , -0.13%
DCE Coking Coal ¥1,394.50 , 0.87%
DCE Coke ¥2,236.50 , 0.77%

Steel and iron ore futures eased while coke and coking cola contracts pushed higher, providing a mixed signal on what direction physical markets are likely to take on Thursday.

Trade in Chinese commodity futures will resume at 11am AEST.

While all three major iron ore grades have steadied in recent days after soaring for the better part of six months, analysts at Morgan Stanley believe the days of the benchmark price are numbered.
Commodities strategists at the bank said prices are “now starting to approach peak levels” in a note released on May 28.

It expects the price for benchmark 62% fines will fall to $78 by the end of the year, driven by softer Chinese steel demand and a recovery in Brazilian iron ore shipments.

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