Iron Ore Surges on State Propaganda and Supply

Seaborne iron ore prices soared on Monday, alongside other raw materials and steel prices. The trigger was a burst of positive sentiment which can almost entirely be traced back to the state, but a concentration of high grade fines among a small group of traders at ports also helped push up prices.

The Kallanish index for 62% Fe Australian fines jumped $3.93/t to $72.37/dry metric tonne cfr Qingdao, the highest level since 11 April. 170,000t of PB fines sold at $72.85/t with a laycan in 13-22 August. Another 170,000t of Vale’s Sinter Feed Low Alumina product traded at an index-linked price. On the Dalian Commodity Exchange September iron ore settled up CNY 26/t at CNY 554.5/t ($82.24/t), while on the Singapore Exchange August 62% Fe futures settled up $4.13/t at $72.23/t.

A flurry of articles were released over the weekend and on Monday which were interpreted as positive to commodity markets. Many focussed on supply side reform, with Li Keqiang and the State Council taking a strong line against mislabelled steel capacity. Solid PMI numbers (despite a dip in the headline figure) and updates on environmental inspections rounded off the day. Two key themes united most of the news. They almost all came from national or local government departments, and they all supported economic confidence, a key political aim for 2017.

Meanwhile at China’s ports, traders noted that stocks of high grade iron ore were concentrated in the hands of a handful of large traders. With Chinese mills still focussed on efficient output, this narrowed the market and supported price increases. This factor depends on Chinese mills preference for high grade ores, but with the autumn ramp up of inventories approaching, that preference is unlikely to change in the short term.