- Iron ore spot markets weakened on Thursday, except for higher grades.
- Chinese rebar futures rose sharply during the session on reports that inventory levels have been falling this week.
- Dalian iron ore futures jumped again in overnight trade. In the past, traders have used iron ore futures as a hedge against weakness in Chinese yuan.
Iron ore spot markets remain quiet and directionless.
And that trend looks set to continue today given the price action in Chinese futures overnight.
On Thursday, the spot price for benchmark 62% iron ore fines fell 0.2% to $64.44 a tonne, according to Metal Bulletin, adding to the 3% slide seen on Wednesday.
As seen in the chart below, for all the ebbs and flows over the past few months, the benchmark has really gone nowhere, range trading throughout.
Lower grades were hit even harder than the benchmark with 58% fines sliding 1.2% to $37.52 a tonne.
However, like Wednesday, higher grades outperformed with 65% fines adding 0.6% to close at $91.10 a tonne.
Perhaps contributing to the strength in higher grades, Chinese steel prices rebounded during the session.
Rebar futures in Shanghai finished the Thursday’s day session at 3,744 yuan, managing to hold most of the substantial gains seen in overnight trade on Wednesday.
The sudden rebound, reversing several days of steep losses, coincided with reports that Chinese steel inventories are declining again after a surprise increase last week.
Weekly stocks rebar held by Chinese traders dropped 2.4% after last week’s increase, according to Reuters, citing data from Steelsearcher.com, a Chinese e-commerce steel trading platform.
“The market feared that stockpiles will continue to grow this week, since that would be a clear signal of weak demand. Now stocks went down, which means the breaking point for demand has not come yet,” Sun Feng, Senior Analyst at Orient Futures, told Reuters.
Importantly, the data from Steelsearcher does not provide nationwide coverage of inventory levels.
Whether due to that news or not, the strength in rebar prices flowed through to iron ore futures in Dalian.
The September 2018 contract finished the day session at 467.5 yuan, inching higher from the overnight close of 467 yuan.
Despite the strength in iron ore futures, both coking coal and coke futures eased lower, finishing the session at 1,183.5 yuan and 2,059.5 yuan respectively.
The trends seen earlier in the day continued in overnight trade with iron ore futures continuing to rip higher despite relatively small moves in other futures contracts.
Here’s the closing scoreboard.
SHFE Rebar ¥3,766 , 0.78%
DCE Iron Ore ¥472.50 , 1.29%
DCE Coking Coal ¥1,184.50 , -0.29%
DCE Coke ¥2,058.50 , 0.19%
While the movements in futures have not been the most reliable lead indicator for those in spot markets this week, the strength in iron ore and rebar futures overnight suggests risks today are to the upside.
It’s also worthwhile noting that the bid in some futures contracts has coincided with renewed weakening in the Chinese yuan, something that in the past led to investors to seek out assets, such as iron ore, that are also priced in US dollars.
Trade in Chinese commodity futures will resume at 11am AEST.