Iron ore's latest bounce looks like it's already over

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Iron ore markets continue to take one step forward, two steps back, bouncing strongly on Wednesday after plunging to a fresh one-year low on Tuesday.

And with Chinese futures down overnight, the early indications suggest that pattern will continue into Thursday, only to the downside.

According to Metal Bulletin, the spot price for benchmark 62% fines rose 2% to $54.43 a tonne, partially recovering the 2.75% plunge recorded in the previous session.

While the day-to-day price action remains wild, the trend is still clearly lower having lost 42.6% since late February.

The bounce in the benchmark price was mirrored across all grades, albeit on a smaller scale.

The price for 58% fines rose by 0.5% to $37.65 a tonne, while Brazilian ore with 65% Fe content added 1% to $71.00 a tonne.

In what is now becoming a familiar theme, Metal Bulletin said a rally in Chinese steel futures helped to boost sentiment in physical markets, helping to drag spot iron ore higher as a consequence.

“China’s spot rebar prices rebounded on Wednesday after Tuesday’s sharp drops, with the paper market turning around,” the group said. “Traders in the spot market raised offers in the afternoon as rebar futures made a sharp rebound during the day.”

However, with Chinese commodity futures giving back earlier session gains in overnight trade, it suggests that renewed weakness in iron ore markets may return on Thursday.

The September 2017 contract on the Dalian Commodities Exchange fell 0.24% to 419.5 yuan per tonne, finishing well below the 432 yuan level it closed Thursday’s day session.

Rebar futures also gave back significant ground, finishing at 3,037 yuan per tonne, well off the day session closing level of 3,084 yuan per tonne.

Should that reversal be maintained or built upon today, it suggests the risks to iron ore spot prices will be to the downside.

Trade in Chinese futures will resume at 11am AEST.

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