Iron ore futures are climbing towards new highs

Damon Corso / Barcroft Media / Getty Images
  • Iron ore spot markets finished mixed on Friday.
  • Chinese economic data released during the session was mixed. CPI and PPI were very weak while new loan growth was strong, pointing to renewed efforts from policymakers to stabilise economic activity.
  • Chinese steel and bulk commodity futures rose on Friday evening, led by Dalian iron ore.

Iron ore spot markets closed mixed on Friday as higher grades rose modestly while mid and lower grades fell.

However, with Dalian iron ore futures scooting higher on Friday evening, it looks like there may be broad-based gains to come on Monday.

According to Metal Bulletin, the spot price for benchmark 62% fines fell 0.2% to $88.16 a tonne, partially reversing the 1.3% gain achieved on Thursday.

58% fines also eased by 0.2%, settling at $69.68 a tonne.

65% fines managed to buck the trend, lifting 0.6% to $100.50 a tonne.

The mixed performance in spot markets came despite modest gains in Dalian iron ore futures on Friday.

The May 2019 contract finished at 626.50 yuan, up from 622 yuan on Thursday evening.

Modest gains were also seen in rebar, hot-rolled coil, coking coal and coke futures which closed the session at 3,641, 3,585, 1,276.50 and 2,071 yuan respectively.

The move in futures may have been helped by the released of mixed Chinese economic data during the session.

Chinese consumer and producer price inflation data for January both undershot market expectations by some margin, not only intensifying concern about a more pronounced slowdown in the Chinese economy but also helping to spur on speculation of further stimulus measures being rolled by policymakers.

“We believe weakening consumer inflation provides more room for policy support to the real economy,” said economists at Credit Suisse.

“More policies targeting credit provision to the private sector and lowering funding cost in the real economy are likely to be announced.”

Suggesting that’s already taking place, separate monetary data showed aggregate financing rose to the highest level on record in January.

“Aggregate financing surged to a record high of 4,640 billion yuan in January from 1,590 billion yuan in December, broadly led by rising new bank loans, strong corporate bonds, more undiscounted bankers’ bills, and earlier issuance this year of local government special bonds,” said analysts at Nomura.

“Although monetary and credit easing measures may help create an accommodative environment for Beijing’s stimulus programs, we believe they are far from being sufficient to shore up the economy.”

While not everyone is convinced the surge in finance provided in January will be enough to stabilise the economy, it was enough to prompt further buying in Chinese steel and bulk commodity futures on Friday evening.

Here’s the final scoreboard.

SHFE Hot Rolled Coil ¥3,601 , 0.95%
SHFE Rebar ¥3,658 , 0.63%
DCE Iron Ore ¥638.50 , 2.08%
DCE Coking Coal ¥1,286.50 , 1.10%
DCE Coke ¥2,083.50 , 1.14%

All five contracts registered gains, led by Dalian iron ore.

Even steel futures managed to lift despite news of a big build in Chinese steel inventories over the Lunar New Year break.

According to data from Mysteel, total steel inventory at Chinese steel traders increased by 1.62 million tonnes last week. Rebar stocks rose 14.2% while hot-rolled coil inventory increased by a smaller 9.5%.

Trade in Chinese commodity futures will resume at midday AEDT.

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.