Iron ore charges higher as stimulus speculation swirls

KAREN BLEIER / AFP / Getty Images
  • The benchmark iron ore spot price surged to the highest level in seven months on Tuesday.
  • Gains were fuelled by speculation over further stimulus measures from Chinese policymakers as well restocking demand from steel mills.
  • Chinese commodity futures continued to rally in overnight trade on Tuesday, pointing to the likelihood that spot markets will resume trade on a stronger footing on Wednesday.

Iron ore prices are surging, supported by growing speculation of further stimulus measures from Chinese policymakers and restocking demand from steel mills.

According to Metal Bulletin, the spot price for benchmark 62% fines jumped 2.5% to $71.14 a tonne, leaving it at the highest level since March 15 this year.

It was the largest one-day percentage move since May 30, extending the rally from the year-to-date low of $63.14 set in early July to 12.7%.

Mirroring the performance from the benchmark, both lower and higher grade ores rose during the session, albeit by a smaller margin.

After tumbling on Monday, the price for 58% fines rebounded modestly, adding 0.4% to settle at $40.26 a tonne.

Higher grade ores continued to grind higher with the price for 65% Brazilian fines increasing 0.6% to $97.10 a tonne.

The across-the-board gains followed a large surge in Chinese iron ore futures on Monday evening, supported by speculation that Chinese policymakers will continue to roll out stimulus measures to support economic activity amidst an ongoing trade war with the United States.

“In 2008, the Chinese government announced a 4 trillion yuan ($US578 billion) stimulus package to fight the impact of the global financial crisis. Now, the Chinese economy is under even tougher pressure amid escalating trade friction,” China’s state-backed Global Times newspaper wrote in an opinion piece.

“Beijing must draw up strong stimulus policies to inject new momentum into the real economy.”

That did little to quell speculation that policymakers will continue to roll out stimulus measures in the period ahead, adding to the the 100 basis point reserve ratio requirement cut announced by the People’s Bank of China on Sunday.

Along with speculation over further stimulus measures, market participants put the sharp rally down to restocking demand from Chinese steel mills.

“Steel mills continued to churn out products during the holiday break and they still have restocking demand in the post-holiday period,” analysts at Huatai Futures said in a note seen by Reuters.

Separately, a Shanghai-based iron ore traded told Reuters that market participants are “generally optimistic towards the near-term future”.

“Investors are unlikely to change their opinion unless there is firm data showing further slowdown in new construction starts in the property market,” they said.

China will release urban fixed asset investment figures for September next week, including construction and infrastructure growth.

Mirroring the performance from spot markets, Chinese steel and bulk commodity futures continued to push higher during Tuesday’s day session, adding to the steep gains recorded on Monday evening.
Rebar futures in Shanghai finished trade at 4,039 yuan, up the prior close of 3,990 yuan.

The strength in steel markets helped to fuel gains in bulk commodity contracts with iron ore, coke and coking coal futures in Dalian finishing the session at 509, 1,333 and 2,405 yuan respectively, up from Monday’s night session close of 507.5, 1,327.5 and 2317 yuan.

The surge in coke contracts was driven by news that China’s Shanxi province, the largest coal-producing province in China, will cut coking capacity and annual coke output over the next year.

Suggesting spot markets will likely start off on a stronger footing on Wednesday, all four futures contracts continued to push higher in overnight trade on Tuesday.

Here’s the closing scoreboard.

SHFE Rebar ¥4,042 , 0.75%
DCE Iron Ore ¥513.00 , 1.18%
DCE Coking Coal ¥1,336.00 , 0.04%
DCE Coke ¥2,444.00 , 3.56%

Trade in Chinese commodity futures will resume at midday AEDT.

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