Iron Ore Prices Hit Four Month High on Zero Covid Easing & China’s Property Curve

Benchmark iron ore futures in China gained for a fourth straight week. Iron ore prices have taken a hammering since the Chinese zero Covid policy however it has steadily risen since November lows. Prices for the most actively traded iron ore futures on the Dalian Commodity Exchange for iron ore cargoes with a 63.5% iron ore content for delivery into Tianjin rose to $110 Friday, the highest since mid-August. Analysts were anticipating demand for iron ore to collapse as China reduced its steel production. Targets were lowered to US$65 to $85 a tonne by many of the larger groups.  

With China effectively abandoning zero Covid curbs this week coupled with measures to stimulate the economy in top consumer China increased expectations for higher demand.

Australian Iron Ore Mining

China’s largest commercial banks agreed to extend $162 billion in fresh credit lines to private developers to fight the sector’s liquidity crunch, the PBoC also cut banks’ reserve requirement ratio further. Iron ore has had a tough year, a combination of the fear from the Evergrande debacle and China’s restrictions due to the energy crisis demand has been weaker but was clearly overdone looking at the price reaction. With the PBoCs plans to ease property curbs and pump further stimulus into the economy the need for steel making ingredients has a returning bid.

The national bond authority has expanded a key financing program by $35 billion to support the sales of bonds after a period of defaults increased the cost of credit for residence builders. Prices remain 33% below their March peak as concerns are still in place about the debt-ridden property sector in China and as supply from Ukraine remains steady despite the war.

Iron ore and steel prices both rose together, pre-emptively riding the China property curve with expectations of a round of easing which the PBOC flagged. Restocking demand at steel mills ahead of new year holidays provided a steady bid.

 DCE Iron Ore i2305

Australia and China Dominate Iron Ore

Source: Dalian

From The TradersCommunity US Research Desk