Weakness returns to iron ore markets

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  • Iron ore spot prices were mixed on Tuesday.
  • Mid and higher grades fell heavily while lower grades continued to rally.
  • Chinese iron ore futures were hosed in overnight trade on Tuesday, pointing to the likelihood of weakness in spot markets on Wednesday.

Iron or spot prices diverged on Tuesday having scaled fresh multi-year peaks to start the week.

According to Metal Bulletin, the price for benchmark 62% fines fell 3.2% to $87.65 a tonne, giving back around half the gains achieved on Monday.

65% fines fell for a second day, losing 2% to settle at $100.50 a tonne.

In contrast, lower grade ore continued to rally with 58% fines adding a further 0.7% to $70.38 a tonne, closing at the highest level since September 2014.

With prices for low and mid-tier ore diverging, the price discount for 58% fines compared to the benchmark narrowed to the lowest level since August 2016.

“Chinese steel mill margins are already subdued and the lift in iron ore prices threatens negative margins. That could result in weaker purchases of iron ore, ultimately limiting any iron ore price spike,” said Vivek Dhar, Mining and Energy Commodities Analyst at the Commonwealth Bank.

“Negative margins will also likely increase the preference of Chinese steel mills towards lower grade iron ore as mills look to reduce costs.”

The mixed performance in spot markets followed broad-based weakness in steel and iron ore futures on Tuesday.

The most actively-traded iron ore, rebar and hot-rolled coil contracts finished the session at 634, 3,785 and 3,674 yuan respectively, down from Monday’s night session close of 646.50, 3,807 and 3,698 yuan.

In contrast, coking coal and coke contracts edged higher, ending trade at 1,291.50 and 2,100.50 yuan respectively.

However, all five contracts fell in overnight trade, led by iron ore which tumbled to 618 yuan, moving further away from the multi-year high of 652 yuan struck on Monday.

SHFE Hot Rolled Coil ¥3,673 , -0.33%
SHFE Rebar ¥3,766 , -0.79%
DCE Iron Ore ¥618.00 , -4.19%
DCE Coking Coal ¥1,273.50 , -0.86%
DCE Coke ¥2,044.00 , -2.71%

The weakness points to the likelihood of a soft start to trade in physical markets on Wednesday.

Trade in Chinese commodity futures will resume at midday AEDT.

NOW READ: HSBC explains why the iron ore rally is likely to fizzle

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