Rampant speculation in China’s iron ore and steel rebar futures markets that helped fuel a surprisingly strong rally in Australian iron ore miners in recent weeks may be starting to cool.
While China’s rebar inventories data yesterday showed supplies of the steel rod used in concrete fell for a seventh-straight week, prices of iron ore and rebar futures faltered after regulators acted to stop excessive speculation and analysts warned the price surge was unsustainable.
Steel rebar inventory fell 7.3 per cent to 4.32 million tonnes last week, the biggest fall in at least six years, Shanghai Steelhome Information Technology reported yesterday. But rebar and iron ore futures slipped after spot iron ore tumbled 5.9 per cent to $US66.33 a tonne on Friday.
Australia’s biggest export surged 21 per cent to a 15-month high of $US70.46 in the first four days of last week. That fuelled a massive rally in iron ore miners, with BHP Billiton hitting a 17-month high of $21.26 a share.
“We remain of the view that overall steel demand in China will remain weak this year, which should ultimately weigh on iron ore prices,” said ANZ’s senior commodity strategist Daniel Hynes.
At the same time, West Texas crude oil futures fell from a five-month high of $US44.49 a barrel struck last week, amid signs that a global glut will worsen as OPEC nations moved to increase their supplies.
Based on Friday’s S&P/ASX 200 index futures trading, the Australian sharemarket is heading for a 0.5 per cent rise today, and BHP American Depositary Receipts equivalent price of $20.66 indicated a 1.5 per cent rise in the resources-sector heavyweight.
But the resources sector could start to falter if commodity prices roll over as most analysts expect.
Surging iron ore and steel prices in China last week prompted futures exchange operators in Shanghai, Dalian and Zhengzhou to increase fees and margins for commodities.
“Market discussion suggests that the measures have been taken after concern from officials over big money inflows into these markets, as illustrated by substantial price swings such as (the) iron ore rally,” Macquarie analysts said in a report.
IG chief market strategist Chris Weston said there was more rebar steel traded on the Shanghai Futures Exchange last Thursday than China’s annual steel production, and the daily volume of iron ore futures on the Dalian Commodities exchange was nearly four times as much as in 2015.
Source: Theaustralian.com.au