On Monday, iron ore futures reached a three-month peak, spurred by China’s new policies aimed at revitalizing its struggling real estate sector. This sector, a major consumer of iron ore, reacted positively to the government’s announcement last Friday, which introduced significant financial support and regulatory relaxations designed to stabilize the market.
The most-traded September iron ore contract on China’s Dalian Commodity Exchange (DCE) closed the day 1.1% higher at 894.50 yuan ($123.72) per metric ton, after touching a session high of 906 yuan. This marks the highest rate since February 20, reflecting a robust recovery in anticipation of increased demand.
China’s central bank and local governments are spearheading efforts to boost the property sector by facilitating an additional 1 trillion yuan in funding and easing mortgage rules, along with local governments’ plans to purchase apartments. These measures are seen as a direct response to the ongoing crisis in the real estate market, which has significantly impacted the broader economy.
Iron ore and steel, integral to construction, have seen their markets fluctuate in response to China’s economic policies. As the world’s largest consumer of these commodities, shifts in China’s market dynamics have a global ripple effect. On the Singapore Exchange, the benchmark June iron ore also saw a rise, up 1.4% to $119 a ton as of 0702 GMT.
The positive movement in iron ore was accompanied by gains across other metals, with copper and gold reaching record highs on Monday, further boosting sentiment in the metals market. “The ferrous complex opened strong today, influenced by the rally in other metals and the very positive real estate support measures announced last week,” explained a trader actively monitoring these developments.
However, the outlook remains cautious, as Chinese steel mills continue to face margin pressures. These mills are expected to resist high raw material costs, potentially leading to price adjustments in the near future. “With margins still negative, we anticipate pushback from mills against suppliers, which could lead to a downward adjustment in raw material prices,” the trader added.
Despite the recent boost, the overall performance of China’s steel industry remains subdued. Crude steel output in China during the first four months of 2024 dropped by 3% year-on-year, and analysts do not expect this year’s output to exceed that of 2023.
Data from the property sector further underscored ongoing challenges, with property investment declining by 9.8% year-on-year in the first four months. Moreover, new home prices in April experienced the steepest monthly drop in over nine years, indicating continued weakness in demand despite governmental interventions.
Other key steel-making components also saw price increases on the Dalian Commodity Exchange on Monday. Coking coal rose by 1% to 1,743 yuan a ton, and coke prices increased by 1% to 2,278 yuan. On the Shanghai Futures Exchange, steel benchmarks showed positive trends, with rebar up 0.7% to 3,735 yuan a ton, hot-rolled coil up 0.5% to 3,865 yuan, wire rod increasing by 1.8% to 4,006 yuan, and stainless steel climbing 1.4% to 14,455 yuan.
These market movements highlights the complex interplay between China’s economic policy initiatives and global commodity markets, particularly as the country continues to navigate through the challenges posed by its real estate sector’s instability.
