Iron ore futures rallied sharply on the first trading day of the week on market optimism over steel demand as China’s recovery gathered momentum.
An upturn in industrial output suggests that the economy expanded in last quarter after cratering in the opening three months due to the coronavirus impact, according to Bloomberg Economics.
The robust steel demand means that Chinese steel mills were playing catch-up after production was disrupted by the pandemic earlier in the year. Chinese iron ore stocks were at multi-year lows in June as Brazilian iron ore exports were down by 29% year-on-year. That said, Platts expects the supply concern will ease off in the second half of the year as Vale increases its shipments to meet its production guidance.
The latest rally started off last Friday afternoon after some Tangshan sellers were rumoured to default on billets and extended through to the new week over buoyant sentiment in the Chinese markets. The Shanghai Composite Index gained another 2.1% on Monday as “fear of missing out” and expectations of China’s recovery drove sentiment.
Iron ore prices was just under 107 upon the open but ticked up higher from the off. With buyers reluctant to chase the market, the first trade was Aug at 107.8. Market then softened a touch, with Aug trading as low as 107.35 before picking up pace once again. Aug was seen trading as high as 108. Sep also traded at 104 and 104.35 while Nov also traded at 98.1.