On Tuesday the Northern China benchmark iron ore price lost 1.4% to $64.10 per dry metric tonne (62% Fe CFR Tianjin port), down more than 6% from 16-month highs hit last week according to data supplied by The Steel Index.
The steelmaking raw material still boasts a near 50% rise year to date and an almost three-quarters surge from nine-year lows reached mid-December. Given that it forges half the world’s steel and consumes more than 70% of the 1.3 billion tonne seaborne trade, the iron ore market is reliant, more than any other commodity, on the Chinese economy.
The surge in iron ore over the past four months has come mainly on the back rapidly rising steel prices in China – up by a fifth just in April in never-seen-before volume – coupled with a reduction in output from domestic miners which have borne the brunt of the flood of new supply from Australia and Brazil.
Both these price drivers are in danger of reversing, potentially turning what has been a fairly orderly decline into a white knuckle one.The spike in Shanghai rebar futures prices – 20% in three weeks in unheard of trading volumes – have prompted Beijing to intervene on the markets once again.
After authorities introduced trading curbs on stocks in 2015, many Chinese investors shifted their attention from the country’s equity markets to commodity derivatives. While the plunge on the Shanghai and Shenzen stock exchange had limited effect elsewhere in the world, six out of the world’s ten most active commodity contracts are now traded in Shanghai, Dalian and Zhengzhou.
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