Iron ore futures saw losses on the back of the biggest fall of Chinese stocks in more than five months, as investors cooled down their buying spree on signs of policy tightening after the country’s economic growth in the second quarter beat expectations.
This, coupled with some profit-taking activities on the back of the positive GDP data, saw Shanghai Composite index close 4.5% lower at 3,210.10.
Iron ore has been on a stellar run of late, bolstered by robust steel demand and optimism of a speedy economic recovery in China. According to the latest data, China churned out a record of 3 million tonnes of crude steel a day in the month of June.
Meanwhile, while China’s Q2 GDP was down 3.2% year-on-year, it was nevertheless a marked improvement (up 11% vs Q1) compared to the first quarter. Also, the Official NBS Manufacturing PMI in China was 50.9 in June 2020.
These figures indicate that China is gradually moving out of the crisis, pushing iron ore prices to the highest in almost a year. Some market participants are however doubtful in China’s recovery pace, particularly as retail sales remain sluggish.
Furthermore, one of the driving forces behind the rally in iron ore has been the supply constraints from Brazil, one of the countries worst hit by the coronavirus. Some 29.4 million tonnes of iron ore departed Brazilian ports in June, according to Refinitiv vessel-tracking and port data.
Brazil has exported more iron ore every month since January, and early estimates suggest that July may see an increase over June’s volumes. Investors will cast a watchful eye on Brazilian miner Vale SA’s quarterly figures next week.
It is estimated to churn out 69 million tonnes in the second quarter, according to the average of five analysts’ forecast compiled by Bloomberg. Vale produced 59.6 million tonnes in the weather-disrupted first quarter.
Iron ore futures were softer on Thursday, with Aug trading below 108. Aug and Sep were seen trading at 107.9 and 104.5, respectively, at the open and drifted lower as the morning went. Sep was seen trading as low as 103.95 while Jul also traded at 108.75. Q4 also traded 98.8 and 99.2.