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Consolidation & Reform Plans Send Iron Ore/Steel Surging

June 28, 2016 at 15:28 by Brent Lantzy

Iron ore shot higher on Monday, registering the largest one-day increase in over two months.

The spot price for benchmark 62% fines for delivery to the Qingdao port swelled by 6.4% to $53.86 a ton according to Metal Bulletin, the highest level since May 20. The spot price has registered a gain of 23.6% so far this year.

The gain followed a surge in iron ore futures on the Dalian Commodity Exchange (DCE) on Monday, which finished up by the maximum limit of 6%.

The most actively traded September 2016 contract on the DCE rose by a further 3.7% in overnight trading reaching 416.5 yuan, its highest level since May 12.

The highest volume October rebar futures closed up 55 yuan to 2265 yuan per ton on the Shanghai Futures Exchange.

On Sunday China’s top economic planner announced a plan to cut 45 million tons of Chinese steel capacity this year. This follows a similar announcement from February in which officials stated their intention to cut 100–150 million tons of capacity through 2020.

Baosteel Group and Wuhan Iron and Steel Group, two of China’s largest steelmakers, have indicated their intent to restructure, though the specific details are not yet clear. Chinese officials have been clear about their intention to consolidate upwards of 60% of steel capacity under the top 10 steel mills.

Investors wonder whether the production cuts will be enough to stabilize the commodity in the long term as producers expect to add more than 110 million tons to their existing capacity over the next few years.

If you have any questions and comments on the commodities today, use the form below to reply.

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