Iron ore price surges 6%

Iron ore price surges 6%

Iron ore is marching to a different drum this week

While other metals markets continue to be mired in negativity, the price of iron ore surged on Wednesday as the market for the steelmaking raw material in top consumer China show signs of a bottom.

The benchmark 62% Fe import price including freight and insurance at the Chinese port of Tianjin raced ahead $3.10 or 5.9% to $55.30 a tonne, capping three days of gains according to data provided by The SteelIndex.

The advance in the Metal Bulletin's benchmark 62%-index at the ports of Qingdao-Rizhao-Lianyungang in China was $2.44 or 4.6% to $55.89 for an 8.7% gain since Friday to a four-week high.

The latest move higher was inspired by a bounce back in Chinese steel prices with the most-traded rebar contract on the Shanghai Futures Exchange touching $340 on Wednesday. That's up from record low of $305 at the start of the month.

The steel price has also been boosted by rumours in China that Beijing has halted all construction inside the city and ordered steelmakers in areas surrounding the capital to make drastic cuts in production and  ahead of September 3 military parade marking the 70th anniversary of the end of World War II Metalbulletin says in its daily note:

"The rumour could not be confirmed, but since the weekend, the talk from local media and market participants is that the clean air policy has now been extended to steel mills in neighboring areas, and that these will be required to stop or limit production in the period leading up to the spectacle.

"Mills located within 100 km around the capital are required to halt all production activities; those within 100-200 km have to cut their output by 50%. Steelmakers located between 200 and 500 km away need to reduce production by one third."

Analysts believe the steel jump and iron ore rally may be short-lived. Reuters quotes CRU Group analyst Wang Li as saying that apparent steel consumption in China fell by 16 million tonnes, or 4%, during the first half of the year:

"For the third quarter, it's very hard to see an improvement in steel consumption because construction activity may not pick up."

A slowing economy and rapidly cooling property market have seen the country's steel consumption contract by 4.7% in the first six months of 2015 according to the country's Iron and Steel Association (CISA).

Chinese steelmakers have not shut capacity at nearly that rate and crude steel output is down only 1.3% compared to the first half of last year before the rumoured mandatory output cuts.

Three weeks ago the spot price reached an all-time low of $44.10 a tonne in a knee-jerk reaction to the chaos on Chinese equity markets and record lows in domestic steel prices.

After almost halving in 2014, the price of iron ore is still down 25% this year from opening levels above $70 a tonne.

China forges almost as much steel as the rest of the world combined and the country sucks in more than 70% of the world's seaborne iron ore.

Iron ore price surges 6%

Source: MetalBulletin