Iron ore spot markets surged higher on Tuesday, mirroring yet another jaw-dropping rally in Chinese futures earlier in the session.
And it looks like the move isn’t finished yet with futures surging again in overnight trade.
According to The Steel Index, the spot price for benchmark 62% fines jumped by 3.2% to $80.10 a tonne, extending its two day gain to 5.3%.
It was also the first time since December 19 that the benchmark price settled above the $80 a tonne level.
Lower grade ore put in a similarly robust performance with the price for 58% fines up 3.3% at $68.60 a tonne.
The move — yet again — was driven by optimism over steel sector capacity cut announced in China over the weekend.
“Chinese authorities at a CISA conference held in Beijing reaffirmed their intent to shut down illegal furnaces and trim the country’s excess steel capacity, lending a fillip to steel prices which has been further boosted by winter restocking ahead of Chinese New Year,” said analysts at The Steel Index.
That followed a story from China’s state-run news agency, Xinhua, over the weekend that Hebei province, which accounts for about a quarter of China’s total steel output, plans to slash 31.86 million tonnes of steel and ironmaking capacity in 2017.
As it has now done on countless occasions in the past, and despite being part of a broader push to eliminate inefficient and uneconomic steel production in China, the talk of capacity cuts lit a fire under Chinese steel prices, supporting everything from iron ore, coke, coking coal and zinc futures.
In early 2016, China’s government announced that it would reduce crude steel output by 100 million tonnes to 150 million tonnes in the five years to 2020.
The announcement that has got markets so excited over recent days is merely part of that previously stated plan.
And it looks like the excitement isn’t over yet. Chinese iron ore futures went bananas again in overnight trade.
The most actively traded May 2017 contract on the Dalian Commodities Exchange added 3.19%, closing the session at 598.5 yuan. It now sits at the highest level seen since December 16.
There were similarly large moves recorded across rebar, coke and coking coal futures, indicating that the move is once again being driven by optimism over the outlook for steel prices.
Trade in Chinese futures will resume at Midday AEDT.