In Commodity News 15/04/2015
China’s iron ore futures jumped more than 4 percent on Tuesday, stretching sharp gains from the previous session as some Chinese steel mills resumed production, encouraged by better margins following a steep decline in raw material prices this year.
Further gains in futures may push spot prices higher, with the benchmark climbing more than 3 percent on Monday to near $49 a tonne. But expectations of additional supply in a glut-hit market could cap climbs in the steelmaking commodity.
Some steel producers in China’s Hebei and Shandong provinces that had either curbed or suspended production due to softer demand and tougher environmental rules have resumed output, said a Shanghai-based trader.
“They have resumed production because at current steel prices and given the sharp drop in iron ore prices, they can still make money,” he said.
The most-traded September iron ore contract on the Dalian Commodity Exchange was up 4 percent at 394 yuan ($63) a tonne by midday. It jumped as much as 5.5 percent to 400 yuan as investors covered short positions, traders said.
Dalian futures rose 3.8 percent on Monday, recovering from a record low of 368 yuan in the previous session. Australian miner Atlas Iron Ltd’s decision to progressively suspend mining this month amid falling prices helped boost investor sentiment.
Iron ore for immediate delivery to China .IO62-CNI=SI climbed 3.2 percent to $48.80 a tonne on Monday, according to The Steel Index.
Hu Xiaodong, analyst at Nanhua Futures in Hangzhou, said as more mills resume output, gains in steel prices may not be sustainable “as steel supply will climb soon to cap the gains”.
That may cut short any recovery in iron ore prices, unless Chinese steel demand perks up, said Hu.
Standard & Poor’s warned it may soon downgrade credit ratings on top iron ore miners Vale SA, Rio Tinto , BHP Billiton and Fortescue Metals Group as it cut its price estimates for the next two years.
Spot iron ore has tumbled nearly 60 percent over the past year as big, low-cost miners ramped up supply.
“We expect prices to remain fundamentally challenged, partially because too much supply is pushing into the market at a time China’s demand growth is slowing structurally,” Bank of America Merrill Lynch said in a report.
“We see significant oversupplies for the next three years, which through lower price will lead to re-oligopolization of the industry.”
