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Iron Ore Skyrockets Amid Stimulus Expectations and Robust Demand Forecast

Bruno T
Latest News
December 25 2023 11:38PM

Iron ore futures experienced an uptick on Tuesday, fueled by optimism over potential economic stimulus actions aimed at revitalizing the Chinese economy and the expectation of sustained demand.

Closing at 980.5 yuan ($137.22) per metric ton, the most actively traded May iron ore contract on the Dalian Commodity Exchange (DCIOcv1) saw a 1.3% increase, recovering from a slight decline in the previous session.

At the Singapore Exchange, the leading January iron ore contract (SZZFF4) advanced 1.2% to $138.7 per metric ton, marking its third consecutive session of gains.

Following an announcement by China’s principal planning agency on Saturday, there’s been a focus on a new group of public investment initiatives. These are part of a bond issuance and investment strategy introduced in October to stimulate economic growth.

In a move signaling potential reductions in lending costs, five of China’s major state banks cut interest rates on certain deposits last Friday. This comes at a time when the government is encouraging banks to bolster the economy.

Analysts are forecasting a likely increase in iron ore demand in the upcoming weeks. This anticipation is based on the expectation that Chinese steel manufacturers will stock up on raw materials to sustain production during the Lunar New Year holiday.

Concurrently, several cities in northern China, including Tangshan, a key steel production center, have declared intentions to implement emergency measures due to escalating air pollution.

In such scenarios, local steelmakers are often obliged to reduce production, impacting the demand for steelmaking raw materials and supporting steel product prices.

The performance of steel benchmarks on the Shanghai Futures Exchange was varied. The most-traded rebar contract (SRBcv1) grew by 0.7%, and hot-rolled coil (SHHCcv1) increased by 0.3%. On the other hand, wire rod (SWRcv1) fell by 0.6%, and stainless steel (SHSScv1) dropped by 0.5%.

Meanwhile, other steelmaking components, Dalian coking coal (DJMcv1) and coke (DCJcv1), saw marginal decreases of 0.8% and 1.3%, respectively.