Iron Ore Futures At 15-Week High, FMG Hits All time High- ASX Iron Ore Stocks on Upswing

  • May 18, 2020 AEST
  • Team Kalkine
Iron Ore Futures At 15-Week High, FMG Hits All time High- ASX Iron Ore Stocks on Upswing

Iron ore prices are again gaining audience amidst a surge in prices with iron ore futures on the Dalian Commodity Exchange soaring from the level of RMB 542.00 (intraday low on 2 April 2020) to the 15-week high of RMB 775.5 (intraday high on 18 May 2020 1:59 PM AEST), which marked a price appreciation of ~43.08 per cent in the wake of ongoing supply constraints across the supply chain, which is further propelling ASX-listed iron ore stocks.

The iron ore port stock across 35 significant Chinese ports shark by another 1.17 million tonnes or 1.14 per cent for the week ended 14 May 2020 to stand at 101.79 million tonnes, which represented a fall of 21.89 million tonnes against the previous corresponding period, which further provided cushion to the outlier commodity amidst COVID-19 outbreak.

While the iron ore inventory is witnessing some supply pressure, the rebar steel inventory across China is showing an accelerated decline as the transportation system across the nation improves during the week ended 14 May 20200.

At present, China is observing a decline in steel inventory at the social and mill level with the drop across the mill level outpacing the social decline, despite a slight improvement in rebar production in the wake of improving steel prices across the globe.

Also Read: Iron ore Price Surge an Anomaly or a Fundamental Shift?

The steel rebar futures (near-term) on the London Metal Exchange surged from the level of USD 399 per tonne (intraday low on 1 May 2020) to the level of USD 404 (intraday high on 15 May 2020), which represented a price gain of ~1.25 per cent.

As per various media and research houses across China, the downstream demand also improved in the local market post the Labour Day holiday.

Steel Rebar Inventory Extends Decline While Prices Jump Across the Global Front

The planned output construction for steel rebar across China rose by 15.24 per cent in May 2020 (till 11 May) as compared to the planned production in April to stand at 9.16 million metric tonnes, in the wake of improving steel rebar prices and downstream demand across the domestic front.

Likewise, the scheduled production for wire roads soared by 17.23 per cent against the previous month for the same period in May while domestic sales for wire roads surged by 25.27 per cent against April 2020.

However, the steel rebar inventory is anticipated to decline ahead, inferred from the steelmaker’s maintenance schedule across Chian released on 11 May 2020, which suggests a planned overhaul in the production by 185,600 metric tonnes, considerably lower against the affected volume of 754,800 metric tonne in April 2020 due to the COVID-19 impact on the economy.

In the status quo, a China research house- SMM anticipates that the steel rebar inventory across social warehouses declined by 7.6 per cent in a week (from 7 May to 14 May) to stand at 8.51 million metric tonnes, higher against the decline of 5.7 per cent seen in the prior week.

Also, the steel rebar inventory across the steelmakers plunged by 11.3 per cent for the same period to stand at 3.39 million metric tonnes, which marked the tenth consecutive weekly decline and remained slightly higher against the previous decline of 5.7 per cent.

The overall steel rebar inventory across steelmakers and social warehouses are estimated to witness to a decline of 8.7 per cent for the week ended 14 May 2020 to stand at 11.9 million metric tonnes, which remained slightly higher against the decline of 6.3 per cent seen in the prior week.

However, on a yearly basis, the overall steel rebar inventory across steelmakers and social warehouses surged by 46.4 per cent (as on 14 May 2020), reflecting on China’s steel production momentum.

Not just the steel rebar inventory, the hot-rolled coil inventory also extended their decline amid robust demand.

The HRC Inventory Drops and Price Surges to Reach a Two-Month High

The HRC inventory across social warehouses in China fell by 4.17 per cent for the week ended 14 May 2020 to stand at 4.26 million metric tonnes, which marked the ninth consecutive decline, while the social inventories across China dropped by 5.98 per cent for the same period to stand at 3.06 million metric tonnes.

The price of HRC futures on the London Metal Exchange (FOB China) soared from the level of USD 388.5 (close on 29 April 2020) by ~8.10 per cent to stand at USD 420 a tonne on 15 May 2020, while prices across the local front peaked to a two-month high with prices of most active HRC contract reaching 3,382 yuan per metric tonne.

ASX-Listed Iron Ore Stocks

ASX-listed iron ore stocks gained further momentum on the exchange in the wake of soaring iron ore prices across China, with stocks like Fortescue Metals Group Limited (ASX:FMG) soaring to an all-time high of $13.510 during the trading session on 18 May 2020.

The stock observed a gap-up opening of ~ 2.94 per cent and it is presently at $13.310 (as on 18 May 2020 2:23 PM AEST), up by 6.05 per cent against its previous close on ASX.

Likewise, BHP Group Limited (ASX:BHP) and Rio Tinto Limited (ASX:RIO) also gained momentum during the trading session on 18 May 2020.

Also Read: ASX-Listed Iron ore Miners and Iron ore Prices to Sustain the Uptick as Supply Chain Restores?

While iron ore remains an outlier commodity, it has provided support to many ASX-listed iron ore stocks such as FMG, which have relatively outperformed equity market indices such as the S&P/ASX 200 Index and underlying commodities.

To Know More, Do Read: Top Five Metals & Mining Performers with Returns More Than ASX200

However, while there has been a lot of noise around the sudden peak in the iron ore price and its impact on cascading positive impact on ASX-listed iron ore mining companies, it should also be noticed that while steel prices are recovering and steel mills purchasing stocks, they are remaining cautious and buying in the limited quantity as required due to high iron ore prices and yet narrow profit margins.

The same could be inferred from the delivery data from 35 significant Chinese ports, which suggests that, while for the week ended 14 May 2020, the inventory declined by 1.14 per cent, the daily average delivery took a hit of 110,000 metric tonnes for the same period to stand at 2.77 million metric tonnes.

 Iron Ore on Charts

 

DCIOc1 Daily Chart (Source: Refinitiv Thomson Reuters)

 

On the daily chart, it could be seen that the commodity recently breached the medium-term resistance level of RMB 753.1 and has expanded the +-1 Standard Deviation (SD) of the 20-day Bollinger band, reflecting decent momentum and higher volatility.

The 12,26,9 MACD is giving a positive signal with the spread between the medium-term 50-day exponential moving average and the mean line of the Bollinger band (or 20-day simple moving average) narrowing down and posing to give a positive cross.

Readers should now monitor the commodity around its recently breached resistance, which should act as a support, and if prices sustain above the same level with few weekly closes and with higher volume could seed further bullish sentiments, while failure to do so would breed bearish sentiments.

 


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