Iron ore may have bottomed as trading volumes surge

• SGX iron ore surges over 3% during Thursday night session
• Restocking ahead of Dragon Boat festival, rumours of steel production cuts, fuel rally
• Downside momentum may be in the process of shifting higher

Iron ore jumps on restocking, steel cut rumours

Iron ore futures are climbing off the canvas, surging on Thursday on the back of big gains in Chinese steel prices. But the reason behind the buying burst makes you question whether the bullish move will last, especially with inventories already bloated relative to seasonal norms.

Ahead of the Dragon Boat Festival running Saturday through Monday, transactional volumes at Chinese ports lifted sharply, jumping 35% compared to Wednesday, according to data from Mysteel Consultancy. Restocking from steel mills is not unusual ahead of holiday periods, hinting the surge may be temporary in nature.

Adding to the bullish picture, rumors swept the market that China is considering a reduction in crude steel output of up to 20 million tons in 2024, sparking a big turnaround in steel prices during the session which helped drag upstream prices higher, including iron ore.

While firmer steel prices boosts mill margins, potentially adding to demand for raw materials as production is incentivised, the reason steel prices surged was because of rumoured production cuts, preventing such an outcome. That alone should add to caution when interpreting recent moves.

While context is important, you can’t argue with the price signals from SGX iron ore futures this week.

SGX iron ore rips on surging volumes

Having been hammered to multi-month lows on Wednesday, buyers regained the ascendency on Thursday on the back of huge trading volumes, delivering a morning star pattern often seen at market bottoms. The surge accelerated into the night session on Thursday, mirroring substantial gains in other commodity futures such as crude oil, copper and silver, suggesting the move may not be entirely iron ore related.

For the moment, resistance at the 50-day moving average held during the session, making that the first level bulls will need to overcome to extend the move higher. With the downtrend in RSI broken, momentum may be swinging around to the topside, suggesting we may se a retest on Friday.

Should it give way a push towards $117.90 may be on the cards, allowing for traders to buy the break with a stop below the 50DMA for protection. Alternatively. Should we see another retest and failure at the resistance zone, consider shorting with a tight stop above the 50DMA looking for a return to $116.10.

-- Written by David Scutt

Follow David on Twitter @scutty