To start off the week, iron ore prices rose higher on Monday despite a selling off in Chinese steel futures in the same period.
Higher grades finished at renewed heights on Monday with 65% Brazilian fines edging up by 0.2% to 98.60 a tonne. But the real mover and shaker according to Metal Bulletin, was the price of 58% fines which soared 1.9% to $46.19 a tonne — its highest level in over a year.
Yet this was all reversed come Wednesday’s trading, as iron ore prices were weakened across the board.
Iron ore price undermined by Chinese economic data
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On Wednesday, the price for benchmark 62% fines slip to $75.71 a tonne, slipping 1.3% and breaking the high performance streak of the last two weeks.
This carried to other grades, and was the first decline recorded since 19 October this year. The prices of 65% Brazilian fines and 58% fines fell 0.5% to $98 a tonne and 0.2% to $45.92 respectively.
Sharp falls in coking coal and coke contracts were also recorded in the same trading period. As reported by Business Insider, the January 2019 coking coal contracted finished slightly lower at 1,388 yuan from 1,392.5 yuan at its previous close. While coke futures saw the same decline on Friday night’s session, down from 2,401 yuan to 2,371 yuan.
The strong gains seen in iron ore spot prices and future markets over the few months and before it’s fall Wednesday, can be put down to three separate reasons, according to Macquarie Banks commodity research team:
‘We see three factors operating here: a rush to boost steel output in China, before authorities there impose controversial winter controls; an incremental shift to lower-grade ores, as mills attempt to manage a margin-squeeze; and, a general strategy to hold utilisation rates stable, in order to keep as many assets operating as possible, throughout winter.’
As well as this, investors interested in commodities should consider mills are now moving towards cheaper, less-efficient ores, which could explain the recent overtake seen in grades.
On Wednesday, officials in China’s Hebei province issued an orange alert — prompting steel mills to immediately halve output levels.
The alert occurred in Tangshan, China’s largest steel production centre and this is probably why we saw such a sharp fall in iron ore prices on Wednesday.
Along with this, the latest Caixin-IHS Markit China manufacturing PMI survey for October was released.
For October China’s official manufacturing Purchasing Managers Index was 50.2, which fell short of the 50.6 anticipated by a Reuter’s poll, and down further from the 50.8 recorded in September.
October’s PMI was the lowest since July 2016.
Iron ore price prospects
The continued heights witnessed in both lower and higher grades of iron ore could still see a reverse on recent declines, as China continues its economic growth strategy.
Spot prices of iron ore have rallied since early October. As a whole, all three grades have increased more than 20% from its year-to-date lows. Meaning iron ore prices are sitting at both multi-month and multi-year highs. Taking this into account, investors can be somewhat at ease.
There’ll be more to say about this later in the month so stay tuned.
For Money Morning