After soaring in the weeks following the Lunar New Year holiday, it now appears that the iron ore rally is unwinding.
Spot markets slumped on Thursday following a late plunge in Chinese futures, and with the latter down heavily again overnight, it looks like the weakness may extend into a third session.
According to Metal Bulletin, the spot price for benchmark 62% fines tumbled 3.14% to $91.34 a tonne, accelerating on the 0.6% slide recorded in the prior session.
It was the largest one-day percentage decline since January 6.
Both higher and lower grade ores also fell, albeit by a lesser margin.
The unwind corresponded with another lift in Chinese iron ore port inventories.
According to Shanghai Steelhome, inventories ballooned to 127.55 million tonnes as at the end of last week, the highest level since at least 2004.
While a sign of continued restocking, some have questioned — including iron ore producers — whether prices are justified at current levels.
“The rally to the highest level since 2014 has occurred at the same time as stocks have been rising, which has caused some producers to question the sustainability of the rise,” said Daniel Hynes, senior commodity strategist at ANZ.
Vivek Dhar, a mining and energy commodities analyst at the Commonwealth Bank, agrees, suggesting on Thursday that “growing surplus risks in China’s steel market should eventually weigh on iron ore prices as restocking demand eases”.
The sharp drop also followed remarks from Lu Kehua, China’s deputy housing minister that preparatory work was being undertaken for a nationwide property tax in China.
Lu provided no details on what form or level the tax would take, but it appeared to weigh on other industrial metals during the session.
Whether due to surplus concerns, a cooler property market or other factors, Chinese iron ore futures continued to unwind overnight, finishing the session at 687 yuan per dry metric tonne, down a whopping 4.05% for the session.
It has now lost 7.4% from the multi-year high of 741.50 yuan struck on Tuesday.
There were also losses recorded across rebar and coal futures, although they were not to the same scale seen for iron ore.
SHFE Copper ¥47,480 , -2.61%
SHFE Aluminium ¥13,630 , -2.75%
SHFE Zinc ¥22,560 , -2.67%
SHFE Nickel ¥87,550 , -2.05%
SHFE Rebar ¥3,479 , -0.94%
DCE Iron Ore ¥687.00 , -4.05%
DCE Coking Coal ¥1,217.50 , -0.37%
DCE Coke ¥1,664.00 , -0.57%
Trade in Chinese commodity futures will resume at midday AEDT.