Iron ore prices rebound, and it looks like there are more gains to come

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Iron ore spot markets rebounded on Tuesday after several days of heavy losses, and with Chinese futures up strongly overnight, it looks like the rebound may continue today.

According to Metal Bulletin, the spot price for benchmark 62% fines rose by 0.54 to $82.01 per dry tonne, stabilising after plummeting 11.9% over the previous seven sessions.

Lower grade ores, having underperformed in prior sessions, put in an even stronger showing with the price for 58% fines lifting 0.86% to $55.30 per tonne.

Metal Bulletin said that trading activity remained thin given wild price movements in futures earlier in the session, initially rising before tanking into the close.

The rebound in spot markets despite ongoing weakness in futures came as no surprise to Matthew Hope, research analyst at Credit Suisse, who wrote in a research note earlier this week that buying was likely to resume should physical prices for steel remain elevated.

“We suspect that they will recover under the force of demand as April approaches and construction winds up. Steel mills will watch pricing, but if physical prices and steel prices stay high, they will soon return to start buying iron ore again,” he said.

The gains on Tuesday came despite burgeoning iron ore stockpiles being held at Chinese ports, lifting to 133.95 million tonnes, according to Umetal, up 19.5% on the levels of a year earlier.

While some have put recent declines in iron ore markets down to bloated inventory levels, Hope says that on a day-supply basis, they’re no higher than usual.

“The market remains fixated by port stocks — including port holdings — (but they) are at normal levels in days of consumption, and so do port stocks when measured as days on import cover,” he says.

Others put the strength in spot markets down to renewed optimism that production capacity cuts across China’s steel sector will further bolster prices, allowing mills to pay up for higher grade iron ore.

That’s a supportive factor that’s often rolled out whenever prices bounce, even though it’s part of an ongoing process that was first announced in early 2016.

Regardless of what drove the rebound in spot markets on Tuesday, with Chinese iron ore futures up strongly overnight, it suggests the strength will likely continue on Wednesday.

The September 2017 contract on the Dalian Commodities Exchange added 3.17%, closing the session at 569 yuan per tonne. That mirrored the price action in rebar futures traded separately on the Shanghai Futures Exchange which added 2.47% to 3,195 yuan.

Coke and coking coal futures — after copping a shellacking earlier in the week — also rebounded, jumping by 5.16% and 5.52% respectively.

This was potentially helped not only by short covering by speculators, but also potential disruptions to seaborne supply as a result of damage caused by Cyclone Debbie which crossed the Queensland coast near major coal infrastructure on Tuesday.

SHFE Rebar ¥3,195 , 2.47%
DCE Iron Ore ¥569.00 , 3.17%
DCE Coking Coal ¥1,195.50 , 5.52%
DCE Coke ¥1,701.00 , 5.16%

Trade in Chinese commodity futures will resume at midday AEDT.

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