Higher grade iron ore prices are under pressure

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  • Iron ore spot markets finished mixed on Wednesday with a small gain in the benchmark masking continued weakness in lower and higher grades.
  • Chinese industrial output and urban fixed-asset investment growth beat expectations in October — the former helped by higher production of steel and cement, suggesting China’s infrastructure machine is starting to stir.
  • Chinese commodity futures rose marginally on Wednesday, although that momentum didn’t extend into overnight trade.

Iron ore spot markets finished mixed on Wednesday with a small gain in the benchmark masking continued weakness in lower and higher grades.

According to Metal Bulletin, the price for benchmark 62% fines rose 0.2% to $75.91 a tonne, snapping a two-day losing streak in the process.

However, while the benchmark gained, lower and higher grades fell for a third consecutive session.

The price of 58% fines slipped 0.3% to $44.71 a tonne, outpaced by a 1% fall in 65% Brazilian fines which settled at $94.40 a tonne.

The latter now sits at the highest level since August 28.

The mixed performance in spot markets came despite a modest lift in Chinese steel futures in Shanghai.

Rebar futures finished Wednesday’s day session at 3,937 yuan, up from 3,876 yuan on Tuesday evening. Hot-rolled coil futures also edged higher, ending trade at 3,617 yuan, higher than Tuesday’s night session close of 3,591 yuan.

The strength in steel futures helped to spur on modest gains in bulk commodity futures in Dalian with iron ore, coking coal and coke futures finishing at 512, 1,360 and 2,351 yuan respectively, up from 509.5, 1,344.5 and 2,311 yuan on Tuesday evening.

The rebound in futures may reflect the release of stronger-than-expected Chinese industrial output and urban fixed-asset investment growth in October.

“Industrial production was expected to slow, but it came out stronger than expected at 5.9% year-on-year in October, a slight improvement over September at 5.8%,” said economists at Deutsche Bank.

“It was helped by higher production of steel and cement, two important inputs for infrastructure.”

In the first 10-months of the year, fixed-asset investment grew by 3.7% from the same period a year earlier, an improvement on the 3.3% annual growth rate seen between January to September.

“Road and railway investment picked up notably in October,” Deutsche said.

“Between July to September, local governments issued 1.3 trillion yuan of special purpose bonds, largely to finance land development and infrastructure projects.

“Now, they are finally catching up with investment spending.”

While that may have boosted sentiment among futures traders earlier in the day, that didn’t extend into Wednesday’s night session with all five contracts finishing mixed.

SHFE Hot Rolled Coil ¥3,600 0.00%
SHFE Rebar ¥3,926 , 0.74%
DCE Iron Ore ¥509.00 , 0.00%
DCE Coking Coal ¥1,359.00 , 0.78%
DCE Coke ¥2,358.50 , 1.48%

Steel and iron ore futures edged lower while coke futures rose modestly. Coking coal meandered before closing near-flat.

The confused price action offers few hints as to how spot markets may move on Thursday.

Trade in Chinese commodity futures will resume at midday AEDT.

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