LAUNCESTON, (Australia): The spot price of iron ore has climbed to a five-month high amid improving sentiment and some supportive fundamentals in China, the world’s top buyer of the steel raw material.
However, there are also some factors that may limit the extent of the rally in coming weeks, such as the likely official moves to ensure steel production this year doesn’t exceed that of last year. Iron ore futures traded in Singapore ended at $121.13 a metric ton on Wednesday, the highest since April 11 and up 17.4% from the recent low of $103.21 on Aug. 3.
Domestic contracts traded on the Dalian Commodity Exchange ended at 856.50 yuan ($117.74) a metric ton on Thursday, the highest since July 2021 and up 46% from the closing low so far in 2023 of 587.50 yuan on May 25.
The rally has been driven by some signs that China’s beleaguered property sector may be starting to turn around, with new bank loans surging in August to 1.36 trillion yuan, nearly quadrupling from July’s 345.9 billion yuan.
This is being viewed as a sign that confidence is returning to the property sector, which had been hard hit by a series of liquidity issues affecting major developers.
It’s not just sentiment that is boosting iron ore, with prices receiving a boost from robust import volumes and signs that steel mills will have to buy more in order to build inventories.
China, which buys about 70% of global seaborne iron ore, imported 106.42 million metric tons in August, the most since October 2020, according to customs data. For the first eight months of the year, imports were 775.66 million metric tons, up 7.4% on the same period in 2022. It’s likely that China’s imports will continue to show strength in September, with commodity analysts Kpler estimating arrivals of 100.53 million metric tons, a figure likely to be revised higher by the end of the month as more cargoes are assessed.
It’s also likely that imports are rising partly because of the pull-forward effect of the upcoming week-long national day holidays at the end of September and the first week of October.
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