Iron ore jumps on return from holiday

Seaborne iron ore prices jumped again on the return of China from its New Year holiday. Prices have spiked on strong expectations for domestic steel markets, despite continuing issues surrounding real estate.

The Kallanish KORE 62% Fe index gained another $2.93/t on Monday to $147.33/dry metric tonne cfr Qingdao, after increasing $5.08/t over the week of the holiday. The Kallanish KORE 65% Fe index was up $2.77/t to $176.75/dmt cfr, and the KORE 58% Fe index appreciated $0.47/t to $123.36/dmt cfr.

On the Dalian Commodity Exchange May iron ore settled up CNY 15/t at CNY 812.5/t ($127.82/t) on the first trading day of the new year. On the Singapore Exchange, meanwhile, March 62% Fe futures settled up $2.40/t at $147.45/t. The same contract for 65% Fe and 58% Fe futures settled up $2.43/t at $176.75/t, and up $0.23/t at $124.66/t respectively.

While Chinese scrap prices continue to be capped by weak demand, billet prices are rising on improved steel market optimism. 6mm+ heavy scrap delivered to mills in the Yangtze River Delta was flat from before the holiday at CNY 3,627/t. Tangshan billet prices however jumped CNY 100/t to CNY 4,600/t, the highest since November.

Cold weather and weak real estate sales over the holiday have done little to stop steel futures prices from increasing (see separate article). Spot markets however remain quiet. Construction workers typically do not return to work on a large scale for another week, so it is too early to tell for sure how strong steel demand will be in the coming weeks.

Both central and local governments are however encouraging financing for projects to be put in place and economic stability has become a core focus for policy in the short term. If this money flows into buying steel through the rest of the first and second quarters, then prices for both steel and iron ore could be driven even higher.

Tomas Gutierrez UK