Iron ore price set to rise as Beijing caves in on stimulus to aid faltering economy
Iron ore futures have spiked after China announced a series of measures to boost growth, buoying the outlook for WA’s key mineral commodity.
Futures rallied more than 4 per cent in Singapore on Tuesday, then pared some of their initial gains, after China’s central bank governor Pan Gongsheng said that policymakers would help banks boost lending to consumers, cut the key short-term interest rate, and lower mortgage rates on existing housing loans.
Shares in Australia’s iron ore mining giants record big gains following the announcement. By 11am Rio Tinto’s stock was up 3.5 per cent, BHP rose 3 per cent and Fortescue jumped 2.1 per cent. Mineral Resources surged 5.7 per cent — also fuelled by a rise across the lithium sector.
Iron ore, a steelmaking staple, has been among the worst performing major commodities this year as China’s slowdown — especially the nation’s drawn-out property crisis — has hurt demand, with mills reducing steel output.
Chinese steelmaker Baowu last month warned of a “long and harsh winter” for the steel industry and was downbeat on the prospect of its government lending a helping hand.
At the same time, major, low-cost miners in WA and Brazil have been boosting supplies, driving the seaborne market into a surplus.
This pushed the iron ore spot price below $US90 a tonne earlier this month, a floor not breached since 2022.
“The (price) rebound may continue for a while due to stronger confidence, but the actual impact on the supply-and-demand dynamic is still uncertain,” said Han Jing, an analyst at SDIC Essence Futures Co.
Iron ore futures gained as much as 4.1 per cent in Singapore, before trading 2 per cent higher at $US91.25/t just before 10am.
The commodity remains more than a third lower this year — currently trading at around $US90/t on the spot market. In China, yuan-priced steel futures climbed in Shanghai.
“Today’s policy is helpful in boosting market sentiment,” said Wei Ying, an analyst at China Industrial Futures.
“However, the domestic economy issue is very complicated, so monetary loosening might not be enough,” Wei added, citing the need to watch for additional fiscal policies.
Base metals were mixed after the stimulus announcement. Copper was trading 0.3 per cent higher on the London Metal Exchange at $US9,573 a ton, aluminium was flat and tin dipped.
But for most of WA’s population only the iron ore price movement is of relevance.
The WA Government on average collects an additional $94 million annually in royalties for every $US1 the iron ore price beats the $US75/t State Budget assumption.
The vast majority of the iron ore mined in WA, and across the rest of the world, is shipped to China and used as a key ingredient in the steelmaking process. This means the iron ore price is heavily tied to China’s appetite for steel.
Chinese steel demand has been waning over the past year as its property sector collapses. The country’s population growth is slowing down and after years of red hot house price growth it appears the bubble has burst.
An August survey from Chinese reporting agency Mysteel highlighted that only 1.3 per cent of the country’s steelmakers are profitable in current market conditions, an unprecedented number.
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