Iron ore futures continued their gravity-defying act for another record-breaking run, fueled by speculative trading and robust steel demand in China.
The most-traded May iron ore contract on China’s Dalian Commodity Exchange (DCE) broke new record with a daily gain of 9.68% to RMB 1,144.50/mt on Monday.
The steel rebar contract on the Shanghai Futures Exchange went with the rally and surged by 4.99% or RMB 212 day-on-day to RMB 4,460/mt.
Steel prices jump to record high
Construction steel prices led the bullish charge with the rebar prices surged to 19-month high at RMB 4,231/mt as of Dec 18, while Tangshan billet prices also hit record-high level at RMB 4,000/mt on Monday, after a daily gain of RMB 120/mt.
Due to high steel prices, the China Iron and Steel Association (CISA) estimated the profit of Chinese steelmakers to by 2.1% on-year during the Jan-Nov 2020 period.
For 2021, CISA expected the domestic steel market to remain bullish, due to tight supply, recovering global economic activities from the pandemic and high steel demand in China.
However, the high raw material costs may erode mills’ profitability in near term, such as the landslide incident in Brazilian mine on Dec 18, which might spur further iron ore price upticks.
More mechanism to curb speculative trading
CISA proposed new iron ore pricing mechanism and more curbs on the future markets to stop speculative trading, which had since pushed iron ore futures contract above the RMB 1,000/mt mark, while benchmark iron ore prices also soared above the $160/mt level.
The association also suggested the cancellation of night futures trading sessions since the physical market will not be in operation by then.
As CISA viewed the recent futures rally being fueled by much speculative trading, especially for the first half of December, which had little to do with market fundamentals.