Iron Ore Held in Check

Iron ore futures remain unchanged overnight Weds/Thurs with the July futures holding above USD 101.00 level (as of 06.15 UK time) having traded as low as USD 99.41. The world’s seconds largest commodity by volume followed the Shanghai Composite index in a holding pattern as traders wait in anticipation of the next round of RRR cuts.

 

Demand remains strong with steel output at record levels and blast furnace rates above 90%. However, with the iron ore futures continuing to hold near their highs, the next move is far from certain.

 

Prices are seeing support from China’s iron ore port inventories, which are now at their lowest levels in three years and coupled with the output and utilization rates the picture looks positive.

 

The pandemic continues to cloud the outlook, the price had been driven higher by mine closures in Brazil (which have now been given the all clear) meanwhile China is experiencing a second wave which has resulted in a cautious approach by traders as they wait to see how quickly it can be contained.

 

Meanwhile steel margins are once again coming under pressure at 70 RMB a ton (source Bloomberg). Although a broad calculation and not one that should be used as a financial benchmark, it does ask the question – can prices hold at these levels as supply increases?

 

Uncertain times have turned the future into a game of chess. Technical analysis would suggest the futures need to head lower, but the bulls and bears have continued to face off, unwilling to take on the market without further guidance.

 

It might not be check mate, but with only six pieces on the board the endgame has become surprisingly complex. (FIS)