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

StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Please ensure you fully understand the risks involved by reading our full risk warning.

FOREX.com is a trading name of StoneX Europe Limited, and FOREX.com/ie is a domain operated by StoneX Europe Ltd, a member of StoneX Group Inc. StoneX Europe Ltd, is a Cyprus Investment Firm (CIF) company registered to the Department of Registrar of Companies and Official Receiver with a Registration Number HE409708, and authorized and regulated by the Cyprus Securities & Exchange Commission (CySEC) under license number 400/21. StoneX Europe is a Member of the Investor Compensation Fund (ICF) and has its registered address at Nikokreontos 2, 5th Floor, 1066 Nicosia, Cyprus.

StoneX Europe Limited is registered with the German Federal Financial Supervisory Authority (BaFin). BaFin registration ID: 10160255

FOREX.com is a trademark of StoneX Europe Ltd, a member of StoneX Group Inc.

The statistical data and the awards received refer to the Global FOREX.com brand.

This website uses cookies to provide you with the very best experience and to know you better. By visiting our website with your browser set to allow cookies, you consent to our use of cookies as described in our Privacy Policy.

Through passporting, StoneX Europe is allowed to provide its services and products on a cross-border basis to the following European Economic Area ("EEA") states: Austria, Bulgaria, Croatia, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden.

Additionally, StoneX Europe Ltd is allowed to provide Investment and Ancillary Services to the following non-EU jurisdiction: Switzerland.

StoneX Europe Ltd products, services and information are not intended for residents other than the ones stated above.

Tied Agent Information: KQ Markets Europe Ltd with Company No. HE427857.
Address: Athalassas 62, Mezzanine, Strovolos, Nicosia Cyprus.
Services Provided: Reception and Transmission of Orders.
Commencement Date: 06/12/2022
Website: KQ Markets - CFD Trading | KQ Markets

We may pay inducements, such as commissions or fees, to affiliates or third-party introducers for referring clients to us. This is in line with regulatory guidelines and fully disclosed where applicable.

StoneX Europe Ltd may make third party material available on this website which may contain information included but not limited to the conditions of financial markets. The material is for information purposes only and does not contain, and should not be construed as containing, investment advice and/or investment recommendation and/or an investment research and/or an offer of or solicitation for any transactions in financial instruments; any decision to enter into a specific transaction shall be made by the client following an assessment by him/her of their situation. StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.