China’s commodity exchanges on Monday moved to raise
trading limits and margin requirements for some iron ore contracts
and reinstated fees on steel futures as a blistering rally in the ferrous metals
complex showed no signs of abating.
Benchmark 62% Fe fines imported into Northern China
(CFR Qingdao) hit a new high on Monday, changing hands for $230.56 a tonne, up
8.62% from Friday session, according to Fastmarkets MB.
The high-grade Brazilian index (65% Fe fines) also
advanced to a record high of $263.00 a tonne.
The Dalian Commodity Exchange said it would raise
trading limits and margin requirements for iron ore contracts for
delivery in June, September, October and December, as well as for January-April
2022 from the May 11 trading day, without providing figures.
The Dalian bourse also warned market participants to
control risks amid fluctuations in prices of iron ore, coking coal
and coke, in a statement on its website.
Several trends, including optimism that central banks
will retain supportive policies even as the global economy recovers triggered
Monday’s gains in iron ore.
Expectations that China will tighten environmental rules have added to the bull case for copper and fueled
speculation that steelmakers may front-load iron ore purchases before new curbs
kick in.
The recent deterioration of China-Australia relations and disappointing output figures from Rio Tinto and Vale have also helped to
fuel the rally.
Operational problems and heavy rains affected iron ore shipments in Brazil in the first quarter. The North System,
which has a 206 million tonne output capacity per year delivered 55 million
tonnes from January to April, up from 51.7 million tonnes during the same
period last year.
“Demand today is higher than the system’s capacity to
meet additional supply, leading to an imbalance that is reflected in prices,”
analyst Ilan Arbetman told Notícias de Mineração.
The iron ore sector “is very, very hot,” Vivek Dhar,
commodities analyst at Commonwealth Bank of Australia, said in a Bloomberg
Television interview.
“Supply is still not able to meet that strong
demand.”
The boom comes as China’s steelmakers keep output
rates above 1 billion tonnes a year, despite a swath of production curbs aimed
at reducing carbon emissions and reining in supply.
Those measures have boosted steel prices and
profitability at mills.
Erik Hedborg, Principal Analyst, Steel at CRU Group
said:
“Recent production cuts in Tangshan have boosted
demand for higher-quality ore and prompted mills to build iron ore inventories
as their margins are on the rise. Iron ore producers are enjoying exceptionally
high margins as well, around two-thirds of seaborne supply only require prices
of $50 /dmt to break even.”
Steelmakers in the rest of the world, such as
ArcelorMittal SA, are also enjoying a boom as demand bounces back
from pandemic lows.
“There is a chance that ex-China demand can come back
to such an extent that we still see steel demand pick up globally and that will
see iron ore demand remain at these elevated levels,” CBA’s Dhar said.
(With files from Reuters and Bloomberg)
Mining.com