Posted on 21 Aug 2020
Iron ore futures prices on the Dalian Commodity Exchange (DCE) stayed on the uptrend on August 19, on the boost of the soaring imported iron ore prices in the physical market that hit multi-year highs, both on the strong backup of solid fundamentals, market sources said on Wednesday.
By the end of the daytime trading session on August 19, the prices of DCE’s September and January iron ore contracts, the former being the closest to the physical delivery and the latter the most-traded contracts on the exchange, posted gains of Yuan 9.5/dmt ($1.4/dmt) and Yuan 7.5/dmt respectively from their settlement prices on August 18, closing the day at Yuan 915.5/dmt and Yuan 857/dmt respectively, according to DCE’s data.
On August 18, the DCE September iron ore contract closed up Yuan 7.5/dmt from the settlement price of August 17, ending the daytime trading of August 18 at Yuan 906/dmt.
Mysteel’s PORTDEX 62% Fe Australian Fines index surged to Yuan 963/wmt FOT Qingdao and including the 13% VAT on August 18, a new high since August 14 2013, and the SEADEX 62% Fe Australian Fines reached $127.6/dmt CFR Qingdao, the highest since January 17 2014, according to Mysteel’s assessment.
Price rises despite DCE’s cooling efforts
Both the latest iron ore surges in the physical and futures markets have had to the remaining market concern on the relative supply tightness of iron ore in the context of high demand from Chinese steel mills for now and for the foreseeable future, a Beijing-based iron ore futures analyst said.
The iron ore spot price gains were more substantial than the future prices increases, indicating the market is paying more attention to the supply-demand balance now than the macro-economic and financial environments in the future, he added.
The actual prices suggest so too, indicating the market concern is more about the short-term than the longer term, as the futures market is still a backwardation against the physical prices, though the latest price surges, despite DCE’s few measures to cool down the market recently, also suggested the extraordinary confidence of the investors on the very market, Mysteel Global noted.
Among the latest efforts to bring the “overzealous” iron ore market to the normal order, DCE announced on August 14 to add in another two new overseas iron ore brands for the physical delivery when the futures contracts mature, which hopefully will increase the physical delivery volume to facilitate the exchange to fulfill its role as to “serve the physical economy, moderate the price volatility, and to discover the real price for the suppliers and buyers”, an industrial source close to DCE commented.
The two newly-added brands are BHP’s Yandi Fines and Ansteel Mining’s Karara Concentrate, with the former at a discount of Yuan 25/dmt and the latter a premium of Yuan 85/dmt against 62% grade fines, which will be allowed for physical deliveries starting September, according to DCE’s notice, adding that, “the new brands may increase the delivery volume by about 50 million tonnes/year”.
Deliverable Brands and Related Premiums & Discounts of DCE Iron Ore Futures
Source: DCE
DCE’s adding brands for long-term gains than short-term solutions
The latest move by DCE is by no means a spontaneous decision or just to cool down the frenzy iron ore market for the short term, and although it has failed to achieve the purpose for now, it may bring in the benefits in the future, Mysteel Global noted.
DCE has started adding in new brands for deliveries since last September to better serve the needs of the industrial investors, and “the two new brands further diversified deliverable products by adding low and high grade iron ore into the existing medium grade fines,” a Singapore-based market watcher said.
The move by the DCE is also interpreted the efforts to enable the futures products to better reflect the real market situation, encouraging more steel mills and iron ore suppliers to invest in the futures market for hedging, thus bringing down the speculative trading proportion and further enhancing the correlation between the spot and futures markets, she added.
A iron ore trader from East China’s Jiangsu province did believe that the two new brands would be providing more choices for the futures investors and might be helpful to ease the drastic fluctuation especially before the maturity of a contract. “However, these two products, with limited market shares, are unlikely to impose too much impact on the futures market behavior,” he admitted.
In the near term, “The very bullish market sentiment for now on the backup of the solid iron ore demand anticipation while limited iron ore port inventories in comparison in the near future, the September iron ore contract price, being still lower than the spot, is hard to fall,” an iron ore analyst from a Shanghai-based futures company noted.
The comparatively low iron ore inventories at the Chinese ports while remaining high steel output in China will be the core supportive factor of iron ore prices, and the discharging difficulties due to the weather and the congestion at many Chinese ports recently have added more positive elements for iron ore prices, Mysteel Global understood from the market sources.
As of August 13, the imported iron ore inventories at China’s 45 ports totalled 113.23 million tonnes, or 2.8 million tonnes or 2.4% lower on year.
Written by Zhiyao Li, lizy@mysteel.com and Victoria Zou, zyongjia@mysteel.com
Edited by Hongmei Li, li.hongmei@mysteel.com
Source:Mysteel Global
