SYDNEY — Iron ore spot markets were slammed again on Wednesday, mirroring an equal ugly day for Chinese futures.
According to Metal Bulletin, the spot price for benchmark 62% fines tumbled by a further 3% to 84.99 a dry tonne, extending the drop over the past four sessions to 8.2%.
It now sits at the lowest level since February 9.
The losses for lower grade ore were even larger with the price for 58% fines slumping by 5.4% to $58.28 a dry tonne.
Here’s the spot price chart:
“The iron ore market slumped further today as recent support for elevated prices gave way to further downwards pressure,” said Metal Bulletin. “Downwards momentum across the grade boundaries has accelerated since the start of the week.”
As was the case earlier in the week, the slump corresponded with renewed weakness in Chinese steel prices, spilling over from futures into spot and physical trade.
“Rebar futures fell close to its daily lower limit during the day, which led to pessimism growing in the spot market,” Metal Bulletin said.
The most actively traded rebar future on the Shanghai Commodities Exchange closed down 4.79% at 3,163 yuan. That led iron ore futures lower with the September 2017 contract on the Dalian Commodities Exchange finishing trade at 577 yuan, a loss of 6.33%.
While the link between steel and iron ore prices is well established, the factors driving the move are, as yet, hard to determine, especially after some of the buoyant price action seen just a week ago.
Given the lack of clarity, some believe it’s a sign of increased speculative activity in futures markets.
“A lot of speculative players in the paper market create volatility in the price and this volatility has affected the physical market,” an unnamed iron ore trader in Shanghai told Reuters.
“Fundamentals have not changed so much. Seasonal demand is still happening because the temperature in most areas in China is warm enough for construction projects to proceed.”
Many believe that speculators in futures markets have led to increased volatility over the past year, encouraged to enter the market by strong commodity price gains in early 2016.
In overnight trade, Chinese futures stabilised after several days of heavy losses, actually finishing higher than Wednesday’s day session closing levels.
Dalian iron ore closed at 586 yuan while Shanghai rebar finished at 3,213 yuan, indicating that the selloff in spot markets may have run its course for the moment.
SHFE Rebar ¥3,213 , -0.03%
DCE Iron Ore ¥586.00 , -1.01%
DCE Coking Coal ¥1,191.50 , -0.29%
DCE Coke ¥1,658.00 , -0.48%
Trade in Chinese futures will resume at midday AEDT.