China’s stimulus, supply concerns catch iron ore fire: Russell

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LAUNSTON – Iron ore prices have welcomed its decision to cut its benchmark interest rate for Chinese mortgages by an unexpectedly wide margin, and there are a number of reasons that suggest a renewal rally is on the cards.

Spot 62% iron ore for delivery in northern China, valued by commodity price reporting agency Argus, reached 5 135.90 per tonne on May 20, up 5.7% from the previous day and the strongest closure since May 6.

Domestic iron ore futures were also stronger on the Dalian Commodity Exchange, gaining another 3.4% on May 20, 827 yuan ($ 123.62) per tonne.

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In a monthly fix on May 20, China lowered the prime rate on five-year loans by 15 basis points to 4.45%, the biggest decline since the restructuring of the interest rate system in 2019 and more than five or 10 basis points offered by the majority in one. Reuters poll.

The move was seen by analysts as an attempt to boost the property and construction sectors, which have been struggling with about 25% of the economy and Beijing’s tough zero-quad policy in recent months, leading to increased lockdowns in several cities. Including Shanghai’s main financial center.

Chinese Premier Li Keqiang said last week that Beijing would increase policy coordination to bring the world’s second-largest economy back to normal growth.

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Lee’s remarks echo market sentiment that while more stimulus measures are likely to be taken, production is also expected to gain momentum.

Combined with the signs that Shanghai is beginning to emerge from its severe lockdown, the outlook is that the Chinese economy is set to recover in the second half of the year.

All of these measures point well to the demand for iron ore and steel production, and there are other factors that suggest that iron ore has more storage space.

The first is that the supply of top exporters Australia and Brazil seems to be below potential.

According to commodities analyst Kepler, top ship Australia is set to export about 72.45 million tonnes in May, down slightly from 73.48 million in April.

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This is the same story for number two exporter Brazil, where exports in May are likely to be slightly weaker than the previous month, a touch of 24.82 million tonnes, down from 25.42 million in April.

Out of Ukraine

There are still concerns about shipments of iron ore from Ukraine, which used to supply about 44 million tons a year to the sea market, mainly to European buyers.

Ukraine was the fourth largest exporter of iron ore, but Kepler’s data showed that shipments had dropped to zero since March, after exporting 2.32 million tonnes in February.

Another small iron ore exporter, India, also seems ready to see its shipments cut, Argus reported on Monday that the government has imposed a 50% tax on exports of all grades.

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This will effectively make India’s exports unrivaled and they are likely to fall to zero. According to Kepler, the South Asian country exported 3.14 million tonnes in April.

Another reason is the Chinese port inventory of iron ore Which has been slipping in recent weeks, although they are still above where they were at the same time in 2021 and 2020.

Weekly inventories stood at 137.25 million tons since May 20, down from the 2022 peak of 160.95 million on February 18, but still above 128.35 million from the same week in 2021 and 110 million in 2020.

In some ways this is not the absolute level of the original material, it is the speed at which they are declining, and the 15% recession since the February high indicates the possibility of a fairly rapid drawing on available stocks and a recovery in demand.

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There are also indications that China is increasing its steel production after controlling winter pollution and lifting some COVID-19 restrictions.

April production rose 5.1% to 92.78 million tonnes from the previous month, although it was still 5.2% below the April 2021 level.

This shows that there is still room for further increase in steel production, and this is a quick way to boost the economy, because even if the produced steel is not needed immediately, it is easy to stockpile it for future use.

Overall, the picture that emerges is that as long-awaited China’s stimulus measures begin to come in, COVID-19 is likely to be delayed and the government wants to return to strong growth in the second half of the year. All positive for iron ore.

(Edited by Muralikumar Anantraman)