While most of the attention in recent days has focused on copper, overnight both Iron ore and steel climbed to records as Chinese investors returned from a three-day holiday and sparked a furious rally.
Spot iron ore prices topped $200 a ton for the first time ever, as futures in Singapore and China climbed. Iron ore with 62% content hit $201.15 a ton on Thursday, according to Mysteel. Futures in Singapore jumped as much as 5.1% to $196.40 a ton, the highest since contracts were launched in 2013. In Dalian, prices closed 8.8% higher.
The story is familiar: steel demand is soaring as economies emerge from covid lockdowns just as the world’s biggest miners have been hampered by operational issues, curbing ore supply.
The boom as Bloomberg notes, comes even as China’s steelmakers keep output rates above 1 billion tons a year, despite a swath of production curbs aimed at reducing carbon emissions and reining in supply. Instead, those measures have boosted steel prices and profitability at mills, allowing them to better accommodate higher iron ore costs.
"China’s plan to cut steel output is not showing any success,” wrote RBC analyst Kaan Peker. While steel production outside China has been slow to ramp up, output should start to recover from late in the second quarter, he wrote.
Meanwhile, according to Fitch, the rally has more room to run, though prices will likely grind lower during the second half of 2021 as supply improves and demand growth slows. There’s also a risk that China could engage in policies that may stymie the rise in iron ore prices abruptly, it said. As a reminder, a similar surge in copper prices which pushed them above $10,000 last week and set to make a new all time high, has unleashed havoc on China's copper-reliant economy, as "some Chinese manufacturers of electric wire have idled units and delayed deliveries or even defaulted on bank loans, according to a survey by the Shanghai Metals Market." Meanwhile, end-users such as power grids and property developers have also been pushing back delivery times, unable to pay for the metal, while producers of copper rods and pipes saw orders slump this week, said the researcher."
Indeed, it's all fun and games as long as leveraged speculators can keep piling on even more leverage to push the price higher, but to buyers of the end product, the price surge is nothing short of catastrophic.
The Thursday surge in iron ore came after Beijing said that it was suspending a ministerial economic dialog with Australia. While a largely symbolic move, ties have worsened in recent years and China has hit Australian barley and wine with crippling tariffs and told traders to stop buying commodities including copper, sugar, timber and lobster. So far iron ore has been spared in the spat, as the Asian nation relies on Australia for about 60% of its imports. Should iron be swept up in the growing trade war, there is no telling how high its price will rise.
Meanwhile, on the steel front, rebar closed at the highest since futures started trading in 2009..
... and hot-rolled coil was at the highest since contracts were launched in 2014.