Iron ore’s stunning surge won’t fade anytime soon because buyers remain nervous about being caught short as global demand accelerates amid lingering supply threats, according to a veteran commodities trader.
“Logic dictates that these are ridiculous prices but fear will continue to keep the scramble going,” said Andrew Glass, Singapore-based founder of Avatar Commodities Ltd. and former head of ferrous trading at Anglo American Plc.
“There is fear of not being able to secure the logistics and the resources you need — $220 is expensive, but it’s much more expensive if you have to shut down a mill because you can’t get material.”
Benchmark 62% Fe fines imported into Northern China (CFR Qingdao) hit a new record on Wednesday, up 3.7%, changing hands for $237.57 a tonne, according to Fastmarkets MB.
Chinese steelmakers are ramping up production in defiance of government attempts to rein in output to control the industry’s carbon emissions.
Stainless steel futures for June delivery jumped 2.2% on the Shanghai bourse to hit an all-time peak of 15,580 yuan a tonne.
“Although it’s still a bull market, the rapid price surge in short-term has accumulated risks and there’s possibility for adjustment,” analysts with SinoSteel Futures wrote in a note.
“The forward contract gained significantly stimulated by intensified China and Australia relations,” said SinoSteel, adding that the possibility of limiting iron ore imports from Australia is very small, but sentiment could impact in the short run.
Analysts with Huatai Futures also reminded investors to control positions on increasing risks due to high iron ore prices.
China’s Dalian Commodity Exchange (DCE) proposed to lower standard iron content requirements in ore delivered against its flagship futures to 61%, seeking to broaden supply sources to include lower grades.
The Dalian bourse plans to reduce iron content in ore from 62% while also amending quality requirements for silica and aluminum oxide.
The price difference between high-grade 65% iron ore and 58% ore surged to a record $90.5 per tonne, while between benchmark 62% ore and low-grade the spread stood at $57.5.
“Market experts believe that the proposal… is in line with the grade of mainstream products in the current market and actual demand of domestic mills,” the DCE said in a separate statement on its website.
China’s southern area is about to enter a rainy season that could potentially dampen demand for construction materials.
The country’s top steel auto sheet producer Baoshan Iron & Steel said in a call on Tuesday that automobile demand in the second quarter is hurt by chip shortage, while the third quarter is traditional off-season.
China will monitor changes in overseas and domestic markets and effectively cope with a fast increase in commodity prices, the state council said on Wednesday.
The country will step up coordination between monetary policy and other policies to maintain stable economic operations, the cabinet also said, as reported by state television.
(With files from Bloomberg and Reuters)