There's another bonkers rally underway in Chinese iron ore futures

Photo: Kevin Frayer/Getty Images.

Chinese commodity futures have gone nuts on Monday, bucking the view expressed by some Sino policymakers that speculative elements that were apparent in recent months were ebbing.

Iron ore futures on the Dalian Commodities Exchange, in particular, have ripped higher, closing the morning session up a whopping 5.18%.

It is currently on track to record its largest one-day percentage gain since April 21.

The move follows a 4% lift in the benchmark spot iron ore price on Friday, according to pricing supplied by Metal Bulletin. The increase was the largest seen in percentage terms in over a month, and saw the price leap back above the $50 a tonne level having fallen to a fresh multi-month low on Thursday.

On current form, and given the recent relationship between the two, the surge in Dalian futures suggests there’s likely to be another significant gain in the spot price later today when Metal Bulletin releases its Iron Ore Index at 8.30pm AEST.

Mirroring the performance seen in Dalian, rebar futures traded on the Shanghai Futures Exchange have also jumped by 4.85% on Monday.

The enormous gains correspond with strength in global commodity prices on Friday, something that followed a sharp decline in the US dollar following the release of a tepid non-farm payrolls report for May.

Although US dollar weakness is almost certainly a contributing factor to the gains seen today, it is important to note that there was little reaction in Chinese commodity futures to the US jobs report on Friday evening, closing the night session up just 0.58%.

This, on face value, suggests that the gains on Monday have been driven by a surge in speculative buying rather than any underlying fundamental factors.

Trade in Chinese commodity futures resumed for a further two hours of trade at 3pm AEST.

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