Now here’s something that you don’t hear every day, particularly in recent weeks.

Chinese commodity futures are actually closed lower on Wednesday. Yes, for those who had forgotten, they do trade both up AND down.

Here’s the final scoreboard:

SHFE Copper ¥48,840 , -0.73%
SHFE Aluminium ¥14,040 , -2.09%
SHFE Zinc ¥23,190 , -1.07%
SHFE Nickel ¥89,740 , -2.32%
SHFE Rebar ¥3,525 , -1.78%
DCE Iron Ore ¥722.50 , -0.69%
DCE Coking Coal ¥1,223.50 , -3.85%
DCE Coke ¥1,666.50 , -4.77%

For those in Australia, perhaps the noticeable aspect about the scoreboard is the weakness in iron ore, a commodity that has been in the news of late after a barnstorming run towards $100 in recent weeks.

That reversal is likely due to a pullback in rebar and coal futures, continuing to move in lockstep as has been seen on countless occasions in the past.

To commodity researchers at Macquarie Bank, the decline seen today, along with the continued correlation between the contracts, isn’t all that surprising

“Given they are almost exclusively used for steel making, then barring any major supply shocks to differentiate their markets, it should be expected that prices for both would move in similar directions,” the bank said in a research note released earlier this week.

Macquarie says the recent divergence between iron ore prices and other steelmaking ingredients such as coking coal, manganese ore and scrap is unusual, and something that is unlikely to last.

“The fundamentals for iron ore do not appear at all supportive of higher prices,” it says.

“(They) have been pushed up to elevated levels purely on extremely bullish sentiment among Chinese market players towards the outlook for steel demand and prices into the traditionally strong spring construction season.

While Macquarie expects steel demand to remain solid through to the end of the current quarter, it says that it’s “fearful that steel mills and traders’ expectations for demand are now too elevated”.

“With inventory levels high for both steel and iron ore, it is only a matter of time in our view before confidence in demand meeting elevated expectations starts to wane, and mills go into a destocking cycle for iron ore,” the bank says.

“With iron ore supply in abundance, we’d therefore expect prices to fall sharply towards a more fundamentally supported $60 a tonne level, essentially repeating the price cycles seen in iron ore and coking coal over 2011, 2012 and 2013 as mentioned earlier.”

Whether today’s weakness signals the start of such a move remains, as yet, unclear.

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