Spot iron ore surges in anticipation of restocking; futures also show upsides

25/12/2017

Sea-borne iron ore jumped past $76 per tonne mark, as the participants are anticipating restocking spree ahead of the resumption of full production at the end of winters.

On Friday, Metal Bulletin’s 62% Fe Iron Ore Index closed at $76.36 per tonne CFR Qingdao, up by $3.54 per tonne (4.9%). It gained 6.8% for the week, extending its rally from October 31 to 30.5%.

Furthermore, the price for 58% fines rose 5.2% to $42.98 a tonne, outpacing a 3.5% increase in ore with 65% Fe content which closed at $90.90 a tonne.

Iron ore and steel futures

Upward movement in the spot markets was followed with an uptick in futures market wherein the Chinese rebar futures surged, and also helping the iron ore and coking coal futures to trade higher.

At Shanghai Futures Exchange, the most traded iron ore contract for delivery in May jumped 2.6% to 3,970 yuan ($603.88) a tonne, posting its biggest daily gain in more than two months. It ended the week by up 2.7% after two straight weeks of losses.

At Dalian Commodity Exchange, the iron ore contract rose 1.9% to 546 yuan a tonne. It surged 7.4% this week in its largest weekly gain since early August. On Friday, coke was up 1% at 2,118 yuan a tonne and coking coal gained 1.1% to 1,392.5 yuan a tonne.

Steel fundamentals

Capacity cuts have done little to restrain China’s crude steel production, which set a series of monthly records over the summer, hitting 74.59 million tonnes in August. CISA data suggested that 42.39 million tonnes of steel capacity has been shut in this year (till August).

November’s steel production was 66.15 million tonnes, a decline of 8.6% from October levels, thanks to the anti-smog shutdowns. But last month’s output still rose 2.2% from a year before. In the first 11 months, China’s steel production remains 5.7% above the year-earlier period.

Meanwhile, the steel prices in China have continually risen in 2017 mainly due to the government’s effort to close small and midsize mills that churn out low-quality steel made from scrap. This has boosted the profitability of the operating mills.

Trends in iron ore

Seemingly, the financing cost is higher during the year-end and traders are not restocking, so inventories are currently low, which pushed the spot prices higher in anticipation that the restocking is round the corner as the steel prices continued to firm up.

Imports of high-quality iron ore fines and lump ore from Australia, Brazil and South Africa jumped 19% from October to 94.45 million tonnes last month. November imports were up 2.8% from a year ago after topping 100 million tonnes in a single month for the first time in September.

Moreover, the total shipments for the first 11 months of the year are up 6% to 990 million tonnes putting the country on track to top record imports in 2016 of just over 1 billion tonnes.

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