End to seasonal stock build likely to signal end to iron ore price rally

Prices for the steel-making raw material declined to a near decade low in mid-January, but have since surged by 37% to $47.73 per tonne, its highest level since June. Prices have surged amid restocking by Chinese steel mills and signs of decreased iron ore supply.

Chart: Apr-16 iron ore futures contract

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Set in a longer term context, this move is a drop in the ocean. Just two years ago iron ore prices were over $120 per tonne.

In China, which accounts for about 50 per cent of global steel supply, benchmark steel prices have also climbed, bolstering mills’ margins. Rebar, used in construction, closed at 1962 yuan ($US301) a tonne earlier this week after closing at a record low of 1626 yuan in November.

Will the rebound continue? It appears unlikely if seasonal trends in China’s steel industry remain.

Construction activity typically picks up in China shortly after the Lunar New Year break and so the most active period for steel production in China occurs in May-Aug each year. Production rates tend to decline from Sept- Nov, reducing the need for iron ore and coking coal before restocking begins ahead of the next rise in production.

Port stockpiles of iron ore in China climbed to 95.55 million tons on Friday, the highest level since May 2015, to head for a sixth monthly increase, according to weekly data compiled by Shanghai Steelhome Information Technology Co.

steel, coal and iron ore price trends

Related article: Seasonal price trends in steel and base metals 

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