Iron ore surged in the spot market on the final day of trading for the quarter, as investors locked in prices ahead of the week-long blackout period bookended by China’s Golden Week national holiday.
The price of the the 62 per cent quality benchmark rose 5 per cent to $US123.47 a tonne on Wednesday, its highest level since September 18, following a stretch of weaker prices.
“The price is up on better views around demand post-Golden Week and that’s probably reasonable because we didn’t see restocking come through in any meaningful way in recent weeks when we often see mills being active,” said NAB’s head of commodity research, Lachlan Shaw.
“Rolling forward to once the holiday completes, it’s reasonable to expect mills will be looking to manage their stocks and potentially restock.”
Chinese buyers and traders will be sidelined for the next week by the break, meaning pricing is limited to the Singapore-traded futures contract and not likely to be indicative of what’s happening in the physical market.Advertisement
Spot prices had been weak in the days leading up to the national holiday, with the traditional restocking demand failing to materialise, in part because of sintering and iron ore transport restrictions around the city of Tangshan, one of China’s key industrial hubs.
Wednesday’s Chinese economic data also pointed to strong momentum in the economy, with activity firming even outside the non-manufacturing sector.
The manufacturing PMI for September beat expectations, expanding to 51.5, although some analysts cautioned brought-forward production ahead of the week-long holiday could have flattered demand.
“The better manufacturing PMI data, particularly the lift in construction new orders was supportive,” said Mr Shaw.
“I think the market is looking at that and taking heart demand will be there post-holiday. I’m anticipating robust demand levels to remain thanks to infrastructure stimulus.”
Wednesday’s price boost was also helped by fears supply from Brazil would be curtailed once again.
On Monday, Brazilian miner Vale said it had temporarily suspended operations at its Viga concentration site following a court ruling.
The suspension will result in a reduction of 11,000 tonnes of iron ore fine production for an indefinite period.
“The suspension this week of the Viga concentration plant has provided some renewed support to the market, but I think this will be short-lived,” said ING head of commodities strategy Warren Patterson.
“Our expectation is that supply worries will ease as we move through the year, which should mean prices trend lower.”
On Monday, Australia’s Department of Industry’s predicted disruptions to Brazil’s iron ore supply would not be resolved any time soon because of the spread of COVID-19, meaning demand from Chinese steel mills would determine the trajectory of iron ore prices.
“[Monday’s suspension] just highlights the problems that Vale has had in Brazil and those problems continue,” said Mr Shaw.
ING’s Mr Patterson said even if prices weakened following the holiday, they were unlikely to fall substantially.
“Iron ore has been a tough one this year, defying most people’s expectations,” he said. “Given robust Chinese demand, I suspect the floor for the market is close to $US100 [a tonne] for the remainder of the year.”
Mr Shaw agreed, saying it was hard to imagine a scenario where the price fell below $US100 a tonne.
“I think we’d need to see a strong lift in supply. We will see better arrivals from Brazil in mid to late October reflecting better shipments but through late September Brazil’s shipments have struggled and in Australia, there’s been no real trend,” he said.
“The issues in Brazil aren’t solved. It could be a challenge if stocks increase but again, I don’t see there being a dramatic downside ahead.”