Iron ore prices jumped more than 10 per cent in Asia trading on Monday on growing expectations that the global economic recovery from the Covid-19 pandemic would extend beyond China and buoy commodities markets.
Futures prices for iron ore in Singapore rose to more than $226 a tonne, a record in dollar terms. In Dalian, China’s main commodities trading hub, the price of the most active futures contract was also up 10 per cent.
The price rise followed a run of recent highs for the steelmaking ingredient, which alongside other raw materials has been supported by strong demand from a rapidly recovering Chinese economy, and is also expected to benefit from government support measures around the world.
The physical iron ore price has hit a record of almost $230 a tonne on Monday, according to S&P Global Platts. That in turn has boosted the share prices of large iron ore producers including Rio Tinto, whose shares powered to a record high £67.05 on Monday. Big producers such as Rio only require a $50 a tonne to break even.
“It’s more than just China now . . . it’s the whole strength of recovery in the steel industry globally,” said Justin Smirk, senior economist at Westpac. “I think the reality is the market’s still incredibly tight, we’ve still got very, very strong steel prices.”
In China, the price of steel reinforcement bars — widely used in the construction industry — have risen to $865 a tonne, up from $660 a tonne at the start of the year.
“These are record price levels and surpass the highs seen in the pre-2010 boom period,” Clarksons Platou Securities wrote in a note to clients.
Chinese steel production leapt 19 per cent in March despite Beijing’s efforts to crack down on production as the government strives to meet its environmental targets.
China’s imports have risen on the back of its appetite for raw materials, alongside a jump in its exports. Data released on Friday showed imports grew 43 per cent in April year on year, though that was partly because of a low base last year when the pandemic hit global trade.
The robust recovery of China’s economy, which returned to pre-pandemic growth rates at the end of last year, lost some momentum in the first quarter. Iron ore imports in April fell compared with March.
Iron ore trade exports from Australia to China have come under scrutiny on the back of geopolitical tensions that have resulted in tariffs on shipments such as barley, beef and wine. As a result, Chinese mills are scrambling to lock in supplies of Australian ore.
Colin Hamilton, analyst at BMO Capital Markets, said Monday’s surge in Singapore and Dalian had been triggered by concerns that bank funding for Australian iron ore in China may be harder to come by in the coming months “given the current geopolitical tension between the countries”.
“We would not be surprised to see suggestions of a temporary pause in purchases from the Ministry of Industry and Information Technology or China Iron and Steel Association . . . and we expect more Chinese rhetoric around prices being too high over the coming days.”
Michael Lovecchio at brokerage StoneX speculated about whether the iron price jump could be attributed to underlying market demand, “Chinese/Australian tensions getting worse” or “simply Chinese retail speculation”.
Raw materials in China have pushed producer prices higher this year, with data released on Tuesday expected to show a jump of more than 6 per cent. China recorded negative PPI in the time between the emergence of the pandemic last year and the start of 2021.
Warren Patterson, head of commodities strategy at ING, suggested that the prospect of inflation was driving investor demand for commodities.
Iron ore is “a real asset, so it’s seen as a good inflation hedge . . . I think that is why we’re seeing a lot of investor money going into commodities”, he said.
“We’re definitely getting to levels where I think price action is detaching from the actual fundamentals,” he added.