Iron ore prices rise amid China’s stimulus measures

Iron ore prices are showing positive dynamics, but analysts are still cautious in further forecasts regarding their growth to three-digit figures.

On September 24, the People’s Bank of China announced the most powerful package of economic stimulus measures since the start of the coronavirus pandemic. It includes, in particular, a 0.5 basis point reduction in the bank reserve requirement ratio (RRR), which will free up about 1 trillion yuan ($142 billion) for new lending, as well as a reduction in the seven-day reverse repo rate to 1.5% from 1.7% per annum.

In addition, a decrease in the average mortgage interest rate by 50 bps is foreseen and lowering minimum down payment requirements.

The Chinese central bank’s decision came less than a week after the US Federal Reserve cut interest rates by 50 basis points.

Amid announcement by China’s central bank, iron ore prices are rising rapidly on the assumption that these steps will help improve the situation in the metal products market.

Thus, January iron ore futures, the most traded on the Dalian Commodity Exchange (DCE), ended the day trading on September 24, 2024, 4.64% higher than the previous session – at 699.5 yuan ($99.38/t), recording the fastest daily growth since May 29, 2023, informs Reuters. On September 24, quotations of basic October futures on the Singapore Exchange rose by 5.8% – to $94.65/t.

On the morning of September 25, January futures for ore on the Dalian Commodity Exchange have grown to 723.5 yuan ($103.11/t). The quotation of October futures for this raw material on the Singapore Exchange rose to $97.8/t.

In addition, the price of other steel raw materials – coke and coking coal, as well as steel products – increased on the DCE.

A rebound in ore prices has raised the possibility that they could return to triple digits, writes Bloomberg. However, commodity prices are still significantly lower than at the end of May due to slowing growth in China and a crisis in the country’s steel industry, as well as heavy supplies from Brazil and Australia.

Huatai Futures notes that due to macroeconomic stimulus, ferrous metal prices will rise in the short term, but the spot market remains cautious. If demand for metal products does not improve significantly, iron ore supply and demand will not reach balance, so downside risk still exists.

Analysts at ANZ also note that while the stimulus measures should stem the deterioration in steel market conditions, they are unlikely to boost demand in the short term as this year’s steel output will be lower than last year.

As GMK Center reported earlier, the British international commercial bank HSBC Holdings is waiting, that iron ore prices in 2024 will be at the level of $100/t. Capital Economics predicts that the quotations of this raw material will vary at the level of $99-100/t, and by the end of next year the prices of iron ore will fall to $85/t.