Iron ore surges higher and it looks like the move isn't over yet

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  • Iron ore spot markets surged higher on Tuesday.
  • The gains were helped by news that Chinese rebar and iron ore inventory levels fell last week, hinting that demand is strengthening.
  • Chinese rebar and iron ore futures rallied again in overnight trade, signalling that the move in spot markets may continue today.

Iron ore spot markets charged higher on Tuesday, mirroring a strong rally in Chinese futures earlier the session.

And with futures up solidly again in overnight trade, it looks like there may be further gains to come on Wednesday.

According to Metal Bulletin, the spot price for benchmark 62% fines rallied 2.1% to $65.30 a tonne, adding to the 0.6% gain achieved on Monday.

It currently sits at the highest level since April 2.

Similar gains were seen across lower and higher grades during the session.

58% fines added 1.4% to settle at $38.25 a tonne. Ore with 65% Fe content was the relative underperformer, rising 1.2% to close at $82.70 a tonne.

The strong gains across spot markets followed a large rally in Chinese futures on Monday evening with most contracts managing to consolidate upon those gains during Tuesday’s day session.

Rebar futures in Shanghai jumped 1.7% to close at 3,419 yuan a tonne, adding to the solid gains achieved on Monday. Iron ore futures in Dalian rose even more, surging 2.7% to finish trade at 451 yuan a tonne.

Rather than optimism that trade tensions between the United States and China may dissipate following conciliatory remarks from both President Xi and Trump over the past 24 hours, the move in spot and futures markets was largely caused due to renewed strength in Chinese steel prices.

Indeed, all of the move in futures markets came hours before Xi Jinping delivered his speech at the Boao Forum.

The strength in steel markets followed news that Chinese rebar inventories continued to slide last week, adding to confidence that demand from China’s construction sector is starting to improve as is usually case during Spring.

Rebar held by Chinese traders fell for a third consecutive week in early April, sliding to 8.73 million tonnes as of April 4, well below the multi-year peak of 9.78 million tonnes struck in mid-March.

“We are expecting seasonal demand to increase consumption which will support raw material prices,” an unnamed iron ore trader in Shanghai told Reuters.

“It’s still quite cold in some parts of China, so I believe it will take one or two weeks before we see construction work fully start.”

Chinese Iron ore port inventories also fell after hitting a record high in late March, dipping to 161.1 million tonnes, according to Shanghai Consultancy, down from 161.68 million tonnes a week earlier.

That may explain the outperformance in iron ore prices over the past two sessions.

And it looks like that trend may continue today based on the movements in Chinese futures markets in overnight trade.

SHFE Rebar ¥3,451 , 0.94%
DCE Iron Ore ¥458.50 , 1.78%

Both rebar and iron ore contracts finished above Tuesday’s day session close, hinting that spot markets may also extend their gains today.

Chinese commodity futures will resume trade at 11am AEST, 30 minutes before the release of Chinese consumer and producer price inflation figures for March.

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