LAUNCESTON, Australia, June 18 (Reuters) – China’s iron ore and steel prices have decoupled somewhat in recent weeks, with the raw material still making fresh highs while the finished product trends lower.
While there are solid supply-driven reasons for iron ore’s relative outperformance, the question remains: how is the current divergence likely to be resolved?
Iron ore futures on the Dalian Commodity Exchange closed at 769.5 yuan ($111.20) a tonne on Monday, down slightly from their record close of 787.5 yuan on June 14.
However, benchmark steel rebar contracts in Shanghai ended at 3,716 yuan a tonne on Monday, down 4.8% from their 8-1/2-year peak of 3,905 yuan on May 22. In year-to-date terms, iron ore futures are up 75%, while steel rebar has gained a more modest 19.4%.
The outperformance of iron ore can be explained by the sudden loss of millions of tonnes from No.2 exporter Brazil in the wake of mine closures for safety checks after a tailings dam burst in January that left more than 200 people dead and numerous still unaccounted for.