Iron ore futures ended the week on record-breaking rally, due to good steel demand, supply concerns and speculative trading.
The most-traded May iron ore contract on China’s Dalian Commodity Exchange (DCE) maintained above the $1,000/mt mark, after booking a gain of 6.23% day-on-day or RMB 63 to RMB 1,073.50/mt on Friday.
Similarly, the steel rebar contract on the Shanghai Futures Exchange closed the session with a late rally, and went up by 3.68% or RMB 153 day-on-day to RMB 4,316/mt.
Declining steel inventories due to good demand
Chinese mills’ stocks continued to decline for the second consecutive week, following the robust steel demand in the country.
According to Mysteel, the total steel inventories of mills’ stock dropped slightly by 0.9% on-week to 5.08 million mt during Dec 10-16 period. The inventories consisted of rebar, wire rod, hot-rolled coil, cold-rolled coil and medium plate, held by 184 Chinese mills surveyed by Mysteel.
The high steel demand was reflected in the recent price rally of Tangshan billet prices, which reached 17 months high of RMB 3,730/mt as of Dec 18, after recording a daily gain of RMB 40/mt.
Other construction steel material prices also rose like rebar, which gained RMB 20 on-day to RMB 4,143/mt as of Dec 16, even though market participants expected price decline for the week, due to slowing construction activities in northern China.
CISA and DCE step up to curb speculative trading
The recent record-breaking iron ore futures rally had raised some eyebrows among the industry players, especially for China Iron and Steel Association (CISA).
The domestic steel industry association questioned whether the price rally was based on market fundamentals or more toward speculative trading. Thus, CISA asked for Chinese regulators to investigate on the spike and crack down on any wrongdoing.
Furthermore, CISA also held dialogues with Australian miners like Rio Tinto and BHP, for price justification as iron ore prices rallied over $160/mt in the short span of two weeks.
DCE also tried to curb speculative trading by adjusting the intraday trading fee rate and non-intraday trading fee rate of iron ore futures to 0.1% of the trading turnover, as of Dec 18.
Previously, the exchange had imposed limits on single-day open positions for the May 2021 iron ore contract in early December when iron ore contract headed toward the RMB 900/mt mark.
Since then, the DCE had stepped up its effort and reminded investors to trade rationally with proposal to adjusting premiums and discounts for iron ore futures on regularly basis.