Iron ore futures in China jumped to record highs in early trade on Monday, amid surging steel prices, extending a rally driven by tight supply and pick-up in short-term demand.
The most-active September iron ore contract on the Dalian Commodity Exchange rose as much as 3.2% to 860 yuan a tonne, the highest on record for the benchmark launched in 2013.
The steelmaking raw material ended the second quarter of the year on Friday up 47%, its best since the last quarter of 2016 amid expectations that supply in the world’s top steel producer will remain tight in the second half of this year.
“We remain bearish in our overall assessment of short-term supply conditions (for iron ore),” said Hui Heng Tan, research analyst at commodities broker Marex Spectron.
“While we continue to expect greater inflows into China in the short term, there are early signs of some tightness developing as per our forward supply indicator,” Tan said in a note.
Iron ore stocked at China’s ports have fallen to the lowest levels since early 2017 largely due to reduced supply from Brazil, where a tailings dam burst in January prompted shutdowns of mines of top producer Vale SA for safety checks.
Lower supply from Australia this year adds to expectations of a global iron ore shortage that some analysts say could last until 2020.
As of last week, port inventory in China stood at 115.25 million tonnes, falling steadily from this year’s peak of nearly 149 million tonnes around mid-April, according to data tracked by HomeSteel consultancy. SH-TOT-IRONINV
In a sign that iron ore supply from Brazil could be recovering, the Baltic Exchange’s main sea freight index marked its biggest quarterly rise in 10 years on Friday.
Capesizes posted their best quarter on record propelled by expectations of higher demand from Vale’s Brucutu iron ore mine in Brazil.
Vale has resumed full operations at Brucutu, one of the mines shuttered following the January dam disaster, according to analysts.
“We remain bullish on short-term demand (for iron ore in China),” Marex Spectron’s Tan said. “Part of the reason for this latest rebound has been due to lower steel rates which are helping to support overall steel prices.”
China’s steel futures traded higher in early session, with construction material rebar on track to post its ninth straight session of gains.
The most-active October rebar contract on the Shanghai Futures Exchange climbed as much as 2.6% to 4,148 yuan a tonne, its highest since February 2011.
Hot rolled coil, steel used in cars and home appliances, gained as much as 2.9% to 4,049 yuan a tonne.
Other steelmaking raw materials also advanced, with Dalian coking coal up 0.2% at 1,391.5 yuan a tonne as of 0232 GMT. Coke rose as much as 2.7% to 2,121 yuan.
Source: Reuters