Iron Ore Rallies as Investors Assess Shifting Currents in China

Updated on
  • Futures in Singapore jump as much as 5.8% as steel prices gain
  • ‘You’d expect iron ore prices to probably follow,’ Lennox says

Iron ore surged as steel prices climbed, with mills in China cutting back on production amid government-ordered curbs to combat pollution. That’s spurring investors to focus on better consumption of higher-quality grades, while sustained economic growth is also providing support.

In Singapore, most-active SGX AsiaClear futures jumped as much as 5.8 percent to $63.20 a metric ton, and traded at $62.95 at 4:10 p.m., poised for a fifth daily advance. On China’s Dalian Commodity Exchange, futures gained 6.5 percent as steel rebar and hot-rolled coil both climbed.

The raw material, which has lost ground in 2017 after a switchback ride, rebounded this month as investors assess conflicting drivers. While China’s plans to roll back steel supply this winter to boost air quality have undercut the near-term outlook for demand as less ore will be needed, the same process has stoked interest in higher-quality output and aided steel prices. On a day-to-day basis the market can be difficult to fathom, according to Fat Prophets.

“If steel prices rise, then you’d expect iron ore prices to probably follow,” said David Lennox, a resource analyst at Fat Prophets in Sydney. “Iron ore’s had a downish couple of months, and the market’s sort of coming to grips with the economic story that’s perhaps starting to come to the fore a little more.”

Spot ore with 62 percent content was $59.88 a dry ton on Friday after rising for three days, according to Metal Bulletin Ltd, benefiting miners including Vale SA, Rio Tinto Group and BHP Billiton Ltd. The spreads between that benchmark grade and higher- and lower-quality ores have widened this year.

Vale’s shares were up 1.5 percent at 11:19 a.m. in Sao Paulo, while Rio Tinto advanced 1.6 percent in London. BHP closed little changed in Sydney overnight.

Iron ore’s recent advance has come even as port stockpiles rise in China, indicating ample supply. The holdings expanded 0.4 percent to 136.3 million tons last week, gaining for the fifth time in six weeks to the highest level since August, according to Shanghai Steelhome E-Commerce Co.

This year, China’s expansion has broadly maintained its momentum, fueled by factory output and consumer spending. In recent weeks, there have been signs of optimism about iron ore, with BNP Paribas SA reopening a bullish bet, saying there’s scope for gains based on a model that crunches data on activity in China as well as the yuan. The country makes half of the world’s steel.

‘Further Cuts’

“Iron ore has risen mainly because of steel prices,” Di Wang, an analyst at CRU Group in Beijing, said by phone. “People are speculating that there’ll be further cuts to steel output during the heating season,” she said, adding that investors have mixed views on the actual impact on steel production.

The global iron ore market has been in flux this year as producers and traders assess the steel industry’s changes in China, with the anti-pollution drive underpinning a rise in the premium that investors will pay for higher-quality material. At the same time, global mine supplies have been increasing.

“China’s getting rid of the older-style mills and going to the super mills,” said Lennox. “They’re taking high-quality iron ore and they’re taking the same quantities -- the actual appetite for iron ore has not changed.”

— With assistance by R.T. Watson

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