What’s new: China’s benchmark iron ore futures surged Thursday to record highs, boosted by steelmakers’ seasonal demand ahead of the holiday season.
The most actively traded iron ore futures contract on the Dalian Commodity Exchange, for May delivery, soared nearly 7% to 971 yuan ($148) per ton, the highest since the exchange launched iron ore futures in 2013. Other contracts for November, December, January, February and March delivery jumped by 3.75% to 8.23% to record highs.
Steelmakers usually stock up on raw materials ahead of the New Year and Chinese New Year, said Cai Yongzheng, chief futures analyst of Nanjing Iron and Steel Co. Ltd. In addition, he said, end products using steel such as cars and home appliances sell well during the holiday season, providing support for the price of iron ore, a key raw material in steelmaking.
The Dalian Commodity Exchange said it would increase the minimum trading margin requirements for May iron ore futures from 11% to 15% starting Monday, meaning investors shorting iron ore futures have to deposit extra funds by the end of Friday to avoid a forced sale of their positions.
The background: China is the world’s largest steelmaker following years of robust economic growth that created huge demand for the material. As the bulk of China’s iron ore supply is imported from Australia and Brazil — Australia supplies about 60% of China’s iron ore — recent strained relations between Beijing and Canberra are adding concerns that bilateral iron ore trade could be disrupted.
Last month, China slapped 200% tariffs on Australian wine — for which China is the largest export market — on top of new sanctions on Australian beef, coal, copper, sugar, seafood and timber. The sanctions followed Canberra’s ban on Chinese telecom giant Huawei and Australia’s condemnation of Beijing’s treatment of Hong Kong and Xinjiang.
Contact reporter Denise Jia (huijuanjia@caixin.com) and editor Bob Simison (bobsimison@caixin.com).
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