Iron ore went berserk again on Monday, closing at the second highest level in nearly 2 years

Photo by Scott E Barbour/Getty Images

Iron ore spot markets ripped higher on Monday, mirroring an equally strong move in Chinese futures earlier in the session.

The price for benchmark 62% fines jumped by 3.74% to $67.43 a tonne, according to Metal Bulletin, the largest one day increase seen since October 25.

Not only did it extend its increase in 2016 to 54.8%, it also marked the second highest closing level since mid-January 2015, second only to April 21 where the price surged by 8.8% to $70.46 a tonne.

From the end of the Golden Week holiday in early October, now a month ago, the price has soared by 20.7%.

At its current level, and excluding freight costs, it is now close to $6 above the federal government’s iron ore forecasts used in the 2016/17 budget.

Now, like then, the strength in iron ore prices was a by-product of another rally in steel prices, boosted by government enforced output curbs in the Chinese city of Tangshan, a major steel producing hub.

The cuts were introduced to improve air quality in northern China, including in the capital, Beijing.

While the impact on steel production was marginal, as analysts at the Steel Index point out, financial markets simply didn’t care.

“Though this round of emission cuts in China‚Äôs Tangshan reportedly finished with minimal impact on steel output, the same was not true of ferrous markets, which have soared on the news,” analyst at the group said.

“The Chinese futures market contracts posted strong gains with Dalian iron ore futures jumping 3.17% and SHFE rebar futures rising to the limit.”

That, in isolation, doesn’t suggest that the rally is on a firm footing, but that’s been heard before only to continue its march higher.

A surge in coking coal and coke futures on the back of tight supply in China, along with renewed weakness in the Chinese yuan — something analysts at Goldman Sachs suggest drove 60% of the rally in iron ore prices in October — may have also been supportive factors.

Whatever the reason, the gains in spot markets look set to extend today if Chinese futures are anything to by.

They continued to rip higher in overnight trade.

The January 2017 iron ore future in Dalian rose by another 2.85%, closing the session at 523.5 yuan.

Those gains were mirrored in rebar, coking coal and coke futures which added near-unbelievable gains of 3.82%, 4.24% and 5.44% respectively.

Chinese commodity futures will resume trade at midday AEDT, around a hour before Chinese international trade figures for October are scheduled for release.

NOW WATCH: Money & Markets videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

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