Volatility in the iron ore price is reaching extreme levels

Photo: Thomas Lohnes/ Getty.

The wild gyrations in the iron ore price continued on Friday, fitting with skittish movements seen earlier in the week.

According to Metal Bulletin, the spot price for benchmark 62% fines rose by 2.66%, or $1.42, to $54.89 a tonne on Friday, recovering around half the losses previously recorded on Thursday.

Despite the volatility recorded during the week, the price went nowhere, rising by a minuscule 0.64%. Year to date it has gained 26%.

There was no definitive explanation behind the volatility, although analysts at Metal Bulletin noted that market activity was muted with far few transactions completed compared to prior weeks.

Suggesting that the wild price action may continue on Monday, Chinese iron ore futures copped a drubbing in overnight trade on Friday, falling by over 4%.

The most actively traded September 2016 contract on the Dalian Commodities Exchange slid by 4.44% to 355.5 yuan, mirroring similar declines in rebar and coking coal futures.

Should those declines be maintained on Monday, it points to the likelihood that the volatility in the spot price will continue today, this time to the downside.

Though acute levels of speculation have infiltrated Chinese futures trading in recent months, helping to explain some of the extremely wild intraday movements, the sell-off on this occasion corresponded with news that Chinese iron ore port inventories swelled to over 100 million tonnes last week, the highest level seen since March 2015.

According to Bloomberg, citing data from the Shanghai Steelhome Information Technology Company, inventories swelled 1.6% to 100.45 million tonnes, leaving them up 7.9% from levels seen at the start of 2016.

Trade in Chinese bulk commodity futures will resume at 11am AEST.

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