Iron ore futures move up on record Chinese steel output

Iron ore futures surged higher at their open today to extend gains, as record Chinese steel production and rebounding global steel demand outrun feedstock supplies.

The September iron ore futures contract on the Dalian Commodity Exchange (DCE) rose by its maximum daily limit of 10pc by 120.50 yuan/t ($18.70/t) to Yn1,326/t in the first 10 minutes of its open today, the highest level since the contract was launched in 2013.

The move higher follows physical trade, where prices have jumped by 14pc since 7 May.

"The portside price rose too much during the weekend. Pilbara Blend Fines (PBF) traded at Yn1,450/wet metric tonne (wmt) on Friday afternoon but at Yn1,600/wmt by Sunday afternoon, up by Yn150/wmt," a Shanghai-based trader said.

In portside trade, PBF traded at Yn1,660/wmt in Shandong this morning, with offers at Yn1,680/wmt in Shandong and Yn1,650/wmt in Tangshan. Argus last assessed the PBF portside price at Yn1,428/wmt free-on-truck (fot) Qingdao on 7 May.

SGX 62pc iron ore paper in Singapore rose by $17.32/t, or 8.4pc, to $223.60/t for May and by $21.19/t, or 10.3pc, to $226.35/t for June in morning trade.

The Argus ICX 62pc iron ore fines index rose by $9.50/dry metric tonne (dmt) to $212/dmt cfr Qingdao on 7 May. Physical iron ore 62pc and 65pc prices are at all-time highs.

The 1.8bn t/yr seaborne iron ore market is still digging itself out of a supply deficit created by a dam accident and wet weather that disrupted around 100mn t/yr of Brazilian and Australian output in 2019.

The hardest hit was Brazil's Vale, whose operations were further delayed by more wet weather and Covid-19 cases in 2020. It expects to produce 335mn t in 2021 at a 350mn t/yr run rate by the end of the year, short of earlier plans to reach 400mn t/yr, which is now not expected until the end of 2022.

Post-lockdown steel demand is booming globally, outstripping capacity and pulling more Chinese steel into export markets. China's steel production curbs have not had much effect, as the world's largest steel producer and iron ore consumer sets new records for steel output.

October rebar futures on the Shanghai Futures Exchange rose by its daily 6pc limit by Yn340/t to Yn6,012/t. Hot-rolled coil October futures also rose by the 6pc limit by Yn358/t to Yn6,335/t.

By Chris Newman and Kitty Xie