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Business Insider: Iron ore futures hit record highs as Chinese inventories slide again

By Business Insider

  • Chinese iron ore futures have surged to fresh record highs on Monday.
  • Prices for major iron ore grades closed at or near multi-year highs on Friday.
  • The Commonwealth Bank now expects prices will stay higher for longer than it previously forecast, describing the recent decline in Chinese iron ore port inventories as a “major worry”.
  • Chinese port stockpiles fell to the lowest level since early 2017 last week, according to data from Mysteel Consultancy.

Chinese iron ore futures continue to soar, climbing again on Monday.

The September 2019 contract on the Dalian Commodities Exchange closed at 763.5 yuan at the mid-session break, leaving it at the highest level on record.

It’s now rallied 74% from late November last year, mirroring similar bullish price action in spot markets over the same period.

On Friday, prices for 58%, 62% and 65% iron ore fines closed at or just shy of multi-year highs, according to Metal Bulletin.

With Chinese futures continuing to soar on Monday, there may well be further gains to come in physical markets when Metal Bulletin releases its daily Iron Ore Index later in the session.

The continued price surge has analysts scrambling to revise up their iron ore forecasts, including at the Commonwealth Bank.

In a note released on Monday, Vivek Dhar, mining and energy commodities analyst at the bank, said he now expects the benchmark spot price for 62% fines to remain higher for longer compared to his previous forecasts.

“While we have always talked about iron ore prices hitting $100 a tonne, supply and demand factors are now aligned enough to justify that outcome for a little while longer,” he said, referring to the chart below showing the bank’s latest forecasts compared to those previously offered.

“We’ve upgraded our iron ore prices by 7% to $92 a tonne in 2019 and 3.5% to $74 a tonne in 2020.”

Dhar said that declining iron ore port stockpiles in China, reflecting record steel production in the nation and iron ore supply disruptions in Brazil, remain a “major worry”.

“The fact that benchmark prices are already around $104 a tonne with port stockpiles around 128 million tonnes means that shortage concerns are likely to intensify as we continue to see port stockpiles fall,” he said.

“Keep in mind that around 120 million tonnes is a ‘safe’ level for port stockpiles and price are surging even before we’ve touched that level.”

According to data from Mysteel Consultancy, Chinese iron ore port inventories have tumbled from 148.9 million tonnes in mid-April to 127.8 million tonnes last week.

Along with disruptions to Brazilian seaborne supply as a result of a deadly mine disaster at an iron ore facility operated by Vale in late January, the decline also reflects strong Chinese demand with crude steel output surging to the highest level on record during April, according to official data released by China’s National Bureau of Statistics (NBS).

Iron ore prices surge on renewed uncertainty over Brazilian and Australian supply

Article by Business Insider – April 1st 2019

  • Iron ore spot markets rose strongly across the board on Friday.
  • Uncertainty over supply disruptions in Brazil and Australia, along with firmer steel prices, likely explain the size of the gains recorded during the session.
  • China’s official manufacturing and non-manufacturing PMIs both improved in March compared to the levels reported in February.
  • The Caixin-IHS Markit China manufacturing PMI report for March will be released on Monday.

Iron ore prices rallied on Friday, supported by renewed uncertainty over Brazilian and Australian supply.

According to metal Bulletin, the spot price for benchmark 62% fines jumped 2.5% to $86.81 a tonne, logging its largest gain in two weeks.

The gains in higher grades were even larger with 65% fines soaring 3% to $99.30 a tonne, leaving it just below the multi-year highs struck in early February.

Lower grades also rallied with 58% fines adding 1.6% to $72.14 a tonne.

The across the board gains coincided with renewed uncertainty over the outlook for Brazilian and Australian iron ore supply, two of the largest seaborne exporters globally.

On Thursday, Brazilian miner Vale lowered its iron ore sales forecasts to a range of 307 to 322 million tonnes this year, down from an earlier estimate of 382 million tonnes.

“The price implications from Vale’s guidance and commentary are significant,” said Vivek Dhar, Mining and Energy Commodities Analyst at the Commonwealth Bank.

“Given the physical nature of iron ore markets, the impending physical tightness to face iron ore markets strengthens our conviction that iron ore prices will rise above to over $90 a tonne in the short term.”

Daniel Hynes, Senior Commodities Strategist at ANZ Bank, is another who expects iron ore prices will remain supported in the period ahead.

“We see a sizable disruption lingering over the market for the near future,” he said, referring to supply disruptions in Brazil.

“Supply-side responses are likely, but will be far short of what is required to meet the needs of the market in 2019. As a result, iron ore exports will fail to meet expected demand by around 35–40 million tonnes in 2019.

“This should keep prices well supported in 2019.”

Along with uncertainty over the outlook for Brazilian supply, news of operational disruptions at facilities owned by Rio Tinto in Western Australia was another factor that helped to propel prices higher during the session.

On Friday, the miner issued force majeure notices to some iron ore customers due to damage from tropical cyclone Veronica, which hit Western Australia earlier this week, according to Reuters.

Rio said that it was “currently assessing the impact of the damage sustained at the Cape Lambert A port facility and is working with its customers to minimise any disruption in supplies”.

A force majeure is invoked when a miner cannot perform an obligation under a contract due to circumstances outside of its control.

Like spot markets, the news helped to spark a rally in Chinese iron ore futures on Friday.

In Dalian, the most actively traded May 2019 contract jumped to as high as 638.5 yuan before closing the session at 631.5 yuan. That was well above the 613.5 yuan level it finished on Thursday evening.

Stronger steel prices also helped to support iron ore futures at the margin with rebar and hot-rolled coil finishing trade at 3,758 and 3,741 yuan respectively, up from 3,695 and 3,673 yuan on Thursday evening.

As seen in the scoreboard below, those moves were largely sustained in overnight trade on Friday.

SHFE Hot Rolled Coil ¥3,732 , 0.67%
SHFE Rebar ¥3,754 , 0.72%
DCE Iron Ore ¥632.50 , 1.85%
DCE Coking Coal ¥1,229.00 , -0.08%
DCE Coke ¥1,980.00 , 0.23%

Trade in Chinese commodity futures will resume at midday AEDT on Monday.

In news that will likely bolster sentiment across the steel and bulk commodity complex further, activity levels across China’s manufacturing and non-manufacturing sectors improved in March, driven in part by booming construction activity.

The government’s manufacturing and non-manufacturing PMIs rose to 50.5 and 54.8 respectively in March, up from 49.2 and 54.3 in February.

A reading above 50 indicates that activity levels improved from a month earlier. The distance away from 50 reveals how fast the improvement occurred.

The separate Caixin-IHS Markit China manufacturing PMI report for March will be released today. In the past, markets have tended to pay more attention to this report than the official government release.

Central banks are buying the most gold since the end of World War II — here’s why

Article by Business insider

  • Central banks have bought the most gold since the end of World War II, with the commodity becoming an increasingly valuable hedge against growing global instability.
  • The near-record buildup in government debt globally, particularly in the US, makes other perceived risk-free assets less attractive.
  • Gold is seen to have returns similar to equities in the current cycle, and a dip in supply makes it a more valuable asset for central banks and investors alike.

Central banks have been buying up gold at a rate not seen since World War II as concerns about geopolitics and the strong dollar see a shift in appreciation for the quintessential risk-free asset.

A broad combination of factors have led to gold’s resurgence, according to the research firm Bernstein. They include geopolitical risk, concerns about government debt, supply issues, and the perception that gold gives better returns over other assets.

“Beyond just the threat of inflation, it is also remarkable that, for the first time since the end of Bretton Woods and, indeed, since the end of the Second World War, central bank buying of gold has actually increased,” a note sent to clients by the firm said on Monday.

Equally, the case for gold purchases is boosted by the near-record levels of government debt in the US, which makes other potential risk-free assets more questionable and could increase inflation figures.

Gold is trading at $1,310 an ounce, up nearly 10% from its recent low in September.

As well as its value related to inflation, gold is likely to see demand increase, while supply will stay “flat at best,” Bernstein said, boosting its value to central banks and investors alike. “As with any other commodity, robust demand and weak supply implies price appreciation,” Bernstein’s analysts wrote.

Gold holdings had been on the decline for years but have seen a clear boost recently.

Bernstein also pointed out that beyond the conversation about central banks’ holdings of gold was its increase in use over jewellery. Both private and public “monetary” holding of gold have overtaken jewellery demand as the primary source of demand growth for gold in recent years, according to Bernstein.

Get the latest Gold price here.

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