Iron ore futures
Chinese iron ore futures have been rising lately due to tighter iron ore stocks at Chinese ports. This is prompting steel mills to order more shipments. Shipments from Brazil, on the other hand, have been weaker due to seasonal factors. This is leading to a gradual rise in spot and futures prices.
The most traded September iron ore futures contract on the Dalian Commodity Exchange is trading at $442 yuan ($71.20) per ton, compared with the spot price of $62 per ton.
About commodity futures contracts
A commodity futures contract is an agreement to buy or sell a particular amount of a commodity at a fixed price on or before a certain date. Buyers use these contracts to avoid the risks associated with price fluctuations. Sellers use the contracts to try to lock in prices for their commodities.
Futures contracts depict market sentiment and expectations regarding the demand, supply, and price for a particular commodity. These contracts reflect current market conditions in futures prices. Investors should keep an eye on futures contract prices and fluctuations to gain a better understanding of market expectations.
The rise in futures prices is positive for companies including Rio Tinto (RIO), BHP Billiton (BHP) (BLT), Vale (VALE), and Cliffs Natural Resources (CLF). It’s also positive for funds such as the iShares MSCI Global Metals & Mining Producers ETF (PICK). Rio Tinto accounts for 11% of PICK’s holdings. The SPDR S&P Metals & Mining ETF (XME) also invests in metals and mining companies.