Iron ore rallies further amid increase in Chinese output

Iron ore prices continued to increase higher on Thursday. As noted by the Metal Bulletin, the spot price for benchmark 62 percent fines climbed 1.85 percent to settle at US$92.61 (AU$120.68) a tonne. With this, the overall increase over the last two sessions has been extended to 5.1 percent.

With regard to lower grade ores, the price for 58 percent fines climbed another 1.93 percent to reach US$63.81 (AU$83.15) a tonne. As for a year-to-date calculation, the prices have escalated by 17.4 percent. This follows on the heels of a more than 80 percent rise witnessed last year.

The increase was seen notwithstanding reports that Chinese domestic iron ore output had enhanced to 184.16 million tonnes in January and February (an increase of 15.3 percent from the same period in 2016), as noted by China’s National Bureau of Statistics. Chinese commodity futures, including those for iron ore, saw weak growth overnight.

Steel prices have been greatly helped by optimism seen concerning infrastructure spending and property sales in China. An iron ore trader, based in Beijing, noted that volatility concerning the same also remains high. "The market is not very stable and everybody wants to wait and see how it will go next," the trader said.

The most actively traded iron ore future for May 2017 dropped by 0.69 percent. It closed the session at 716 yuan. In comparison, the intraday maximum, as recorded during Thursday’s day session, reached 735 yuan. At the same time, rebar futures on the Shanghai Commodities Exchange also slumped by 0.83 percent to reach 3,591 yuan.

There is notable demand for higher grade iron ore from countries like Australia and Brazil, but lower grade ore has been comparatively disappointing, the trader said. "Because steel mills' profits are quite okay, they prefer higher-grade products," the trader said. "And now some domestic concentrate is coming out so that's why low-grade cargoes are not popular."

In February this year, spot iron ore reached its maximum of US$90 (AU$117.28) a tonne in 30 months. Subsequently, this pushed Chinese miners that were closed off years ago to reopen and resume their operations. According to the traders, a large part of iron ore at Chinese ports currently is lower grade material.

As of March 10, port inventory was 130 million tonnes. This came as a significant drop of nearly 50,000 tonnes from the week prior, which was the highest recorded inventory since 2004.