Iron ore futures broke the $1,000/mt mark, after a late rally in the afternoon session that pushed up rates at the close.
Thus, the most-traded May iron ore contract on China’s Dalian Commodity Exchange (DCE) rose by 2.96% day-on-day or RMB 29 to RMB 1,008/mt on Wednesday.
The steel rebar contract on the Shanghai Futures Exchange, also rallied in record-breaking run to RMB 4,148/mt, up 3.18% or RMB 128 day-on-day.
Speculative trading or concerns over escalating trade tension?
The run-up to over $1,000/mt mark was impressive but was met with skepticism from the China Iron & Steel Association (CISA) on speculative trading and market manipulation since last week.
Nevertheless, the robust Chinese steel demand also accelerated the seven-year high rally in the DCE, since the exchange’s first launch of iron ore futures trading back in 2013.
Supply concerns entered the fray as well, as the Australia’s Bureau of Meteorology predicted more severe cyclones and wetter weather during Dec-Feb 2021 period.
Moreover, the political risk came into the play as well, as trade tensions between China and Australia worsened over Chinese ban of Australian imports like wines, barley, beef and coal.
So far, Australian iron ore was spared from the Chinese blacklist of import restriction, as China depends heavily on the commodity for steelmaking and imports almost 60% of its iron ore needs from Australia.
If the import restriction was extended to Australian iron ore, the Chinese steel mills had to rely heavily on Brazilian iron ores, which shipments are likely to be disrupted by rainy season during the Oct-Mar 2021 period.
Rising crude steel production on good margins
Despites the risks, China’s crude steel production rose to an average of 2.2 million tonnes per day for the Dec 1-10 period, up 4.6% from previous 10-day period, according to the China Iron & Steel Association (CISA).
The higher output was due to good steel margins estimated at around RMB 200/mt for electric arc furnace (EAF) mills located in southern China.
The good steelmaking margins also led to China’s steel scrap price to hit a 7-year high, as mills restocked scrap to replenish their inventories to sustain operation throughout the winter periods.
According to Mysteel, the steel scrap stocks at China’s 61 blast furnace and electric-arc-furnace producers had risen for the sixth consecutive week by another 36,600 tonnes or 1.1% on-week to 3.3 million tonnes as of December 10, equivalent to around 13 days of consumption.