Iron ore sees biggest weekly gain ever on China outlook, futures

12 November 2016

Spot iron ore prices hit a two-year high and clocked their biggest weekly gain since tracking began in 2008 as iron ore futures in China rallied further on Friday on an optimistic outlook for Chinese steel demand.

The gains in China's commodities futures ranged from industrial to agricultural, with copper surging 9 percent and cotton up 5 percent, as funds bet on the world's No. 2 economy stabilizing.

Chinese iron ore futures surged 6 percent to hit their exchange-set ceiling for a third day in a row as Shanghai steel futures raced to their strongest in more than two years.

The most-traded January iron ore on Dalian closed up 6 percent at its upside limit of 614.50 yuan ($90) a tonne, its highest since April 2014.

The strength in futures helped lift trades in the physical iron ore market, with spot cargoes from top suppliers Australia and Brazil sold at higher prices, traders said.

Iron ore for delivery to China's Tianjin port jumped 7.4 percent to $79.70 a tonne on Friday, its strongest since October 2014, according to The Steel Index (TSI).

For the week, the spot benchmark soared 23 percent, its biggest such gain since TSI began tracking prices in October 2008."While some of the lift can be attributed to more optimistic demand prospects in China's manufacturing and property sectors, speculative trading is also playing a major role," Commonwealth Bank of Australia analyst Vivek Dhar said about the rapid rally.

Moves by Chinese exchanges to increase trading charges following a surge in futures markets, particularly in coal, have diverted funds to iron ore futures, Dhar wrote in a note.

"I think the steel mills in China are just getting a lot more confident about the outlook with the market depressed for so long," said Daniel Hynes, commodity strategist with ANZ Bank.

"And supply growth is starting to wane. There is also some fear that the market will tighten up quickly and certainly the coal traders got caught out and maybe that type of panic is starting to emerge in the iron ore market as well."

Beijing's push to curb overcapacity in coal has shuttered many mines across the country, limiting domestic supply and fuelling a price rally this year.

Rebar steel on the Shanghai Futures Exchange rose 3.5 percent to end at 3,126 yuan a tonne after peaking at 3,148 yuan, its highest since July 2014. Dalian coking coal jumped 2.6 percent to 1,563 yuan.