Iron Ore Surge

Metals

Exuberance in the metals complex has taken copper to uncharted waters, with  LME 3M copper hitting a fresh high of US$10,747.5/t, whilst aluminum prices briefly traded above US$2,600/t, the highest levels since April 2018.

As for China production, the latest SMM survey shows that China's copper cathode production rose 7.3% YoY and 2% MoM to 878kt in April. Among other metals, Chinese primary aluminum production rose 9.9% YoY to 3.25mt last month. For the first four months of the year, output rose 8.6% YoY to a total of 12.9mt. The group said that refined nickel output remained almost flat to stand at 13kt last month. Similarly, refined zinc output also remained largely unchanged from the prior month; however, it rose 4% YoY to 499kt in April. On a year-to-date basis, zinc production rose 4.25% to a total 2mt.

Turning to bulks, and iron ore prices in Singapore and China's Dalian Exchange hit all-time highs yesterday, with iron ore June futures on SGX jumping at one stage 10%, trading to a high of US$226/t. However, the market has already given back a lot of these gains, and this morning is trading back down at around the US$215/t level. It's hard to pinpoint a single specific reason for yesterday's big move, but most market participants believe the surge was a speculative move. Optimism that central banks will retain supportive policies, and that steel production in China will remain robust (given the attractive margins on offer for mills) despite the ongoing production curbs, continues to prove constructive for the iron ore market. In addition, the suspension of economic dialogue between China and Australia has heightened the risks of supply and contributed to the recent surge in iron ore prices, given China's huge dependency on iron ore imports from Australia (roughly accounts for 61%).

The spike in raw material prices forced nearly 100 steelmakers, including leading producers such as Hebei Iron & Steel Group and Shandong Iron & Steel Group to lift their offer prices for steel products on Monday. However, the move has raised concerns over the impact on a range of downstream industries, especially for smaller manufacturers who cannot stomach higher prices.

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Disclaimer: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any ...

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