Iron ore and steel climbed to records as Chinese investors unleashed fresh demand following a three-day holiday.
Benchmark spot iron ore prices topped $200 a ton for the first time ever, while futures in Singapore and China climbed. Steel demand is surging as economies chart a path back to growth just as the world’s biggest miners have been hampered by operational issues, tightening ore supply.
The boom comes as China’s steelmakers keep output rates above 1 billion tons a year, despite a swath of production curbs aimed at reducing carbon emissions and reining in supply. Instead, those measures have boosted steel prices and profitability at mills, allowing them to better accommodate higher iron ore costs.
“China’s plan to cut steel output is not showing any success,” RBC Capital Markets analyst Kaan Peker wrote in a note. While steel production outside China has been slow to ramp up, output should start to recover from late in the second quarter, he wrote.
Spot iron ore with 62% content hit $201.15 a ton on Thursday, according to Mysteel. Futures in Singapore jumped as much as 5.1% to $196.40 a ton, the highest since contracts were launched in 2013. In Dalian, prices closed 8.8% higher.
Read more: Global Steel Demand Seen Rebounding Above Pre-Pandemic Levels
The rally has more room to run, though prices will likely grind lower during the second half of 2021 as supply improves and demand growth slows, according to Fitch Solutions. There’s also a risk that China could engage in policies that may stymie the rise in iron ore prices abruptly, it said.
Iron ore’s surge came as Beijing said Thursday that it was suspending a ministerial economic dialog with Australia. While a largely symbolic move, ties have worsened in recent years and China has hit Australian barley and wine with crippling tariffs and told traders to stop buying commodities including copper, sugar, timber and lobster. So far iron ore has been spared in the spat, as the Asian nation relies on Australia for about 60% of its imports.
