The iron ore price ripped higher on Monday, recording its largest one-day percentage increase in over three months.
According to Metal Bulletin, the spot price for benchmark 62% fines rose by 3.75%, or $1.54, to $42.66 a tonne. It was the largest percentage increase since October 8 last year, and left the price up 8% since January 13.
Analysts at Metal Bulletin suggest that tighter steel markets, leading to higher prices, contributed to the substantial daily increase.
“Rebar dealers in the country’s northern region were encouraged to by the gains in the billet market over the weekend, resulting in them raising their offers for a third consecutive trading day on the back of increases in the prices for the semi-finished product,” said Metal Bulletin.
“In the eastern region, tight supply is giving market participants little room to manoeuvre when it comes to price adjustments. The most-traded May rebar futures contract on the Shanghai Futures Exchange closed at 1,827 yuan ($278) per tonne on Monday, up 49 yuan ($7) per tonne from last Friday’s closing price.”
Aside from tightness in local steel markets, the iron ore rally has also coincided with signs of continued industry restocking.
According to data from Shanghai Steelhome, Chinese port inventories rose by 1.7% to 94.55 million tonnes last week, taking them bank to levels last seen in April last year.
In December Chinese iron ore imports rose to a record high of 96.27 million tonnes, blowing away the previous record high of 86.83 million tonnes set in January 2014.
The chart below shows the huge spike in Chinese iron ore demand seen in December, something that corresponded with spot prices hitting the lowest levels on record midway through the month.
Speaking to Bloomberg, Zhao Chaoyue, an analyst at China Merchants Futures, suggested that port inventories could rise even further in the period ahead, predicting port inventories were likely to balloon to over 100 million tonnes.
“The increase will be driven by higher shipments from Australia and Brazil, especially in the final months of 2015, against a seasonally weak period for China demand,” said Zhao.
While growing inventories will likely lead to downside price pressures should Chinese steel demand remain remain tepid, there are few signs of that at present.
After rallying close to 4% on Monday, Chinese iron ore futures continued to surge overnight with the most actively traded May 2016 contract on the Dalian Commodities Exchange rallying by a further 1.91% to 320 yuan.
Rebar futures on the Shanghai Futures Exchange also added 1.16%, taking the price back to 1,828 yuan a tonne.
Should these gains be maintained or built upon during today’s day session – beginning at 12pm AEDT – it points to the likelihood of another lift in spot prices arriving later on this evening.