Iron ore hits new highs as steel follows

Seaborne iron ore prices surged to new highs on Tuesday, while Chinese steel futures followed more slowly. Optimism about autumn demand and new injections of liquidity to the economy are driving prices higher.

The Kallanish KORE 62% Fe index jumped $4.82/t to $126.50/dry metric tonne cfr Qingdao, just a few cents short of the 2019 peak of $126.68/dmt cfr on 3 July that year. The Kallanish KORE 65% Fe index leapt $4.51/t higher to $134.06/dmt cfr, and the KORE 58% Fe index gained $3.01/t to $110.98/dmt cfr. 

On the Dalian Commodity Exchange January 2021 iron ore settled up CNY 15.5/tonne at CNY 849.5/t, while on the Singapore Exchange September 62% Fe futures settled up $5.81/t at $122.71/t. The same contracts for 65% Fe and 58% Fe futures settled up $5.89/t at $132.11/t, and up $0.75/t at $107.32/t respectively.

On the Shanghai Futures Exchange the October rebar contract closed CNY 16/t higher than Monday at CNY 3,848/t ($554/t), while the same contract for hot rolled coil closed up CNY 34/t at CNY 3,984/t. In Tangshan, billet prices were flat at CNY 3,410/t.

Ferrous markets, but especially iron ore, have been buoyed by optimism over Chinese steel demand in the coming months. This implies that China’s blast furnaces will maintain very high operating rates at least until the end of autumn. 

In order to back up this optimism, the Chinese government has been keen to balance the need to have plentiful financing available to support the recovery, but strict limits on the use of funds to prevent them from being wasted.

On Monday the weekly State Council executive meeting stressed that liquidity would be maintained but there would be no “…flood irrigation.” On the same day, however, the People’s Bank of China injected CNY 700 billion into credit markets through a one-year medium-term lending facility. This helped to support the view that strict controls on credit will not mean a shortage of ready funds for the rest of the year.

Steel and iron ore markets have also been bolstered by inventory levels. Although these have increased slightly for both steel and iron ore, the pace of increase has been very slow despite high production levels and steel demand passing the lowest point of the summer.