By Clyde Russell
LAUNCESTON, Australia- Iron ore prices cheered China’s decision to cut its benchmark interest rate for mortgages by an unexpectedly wide margin, and there are several factors that suggest a renewed rally is on the cards.
Benchmark iron ore futures in China rose about 7 percent in early trade on Monday, tracking their biggest daily jump in two-and-a-half months, after India increased export duties on some commodities to rein in broadening inflationary pressures.
Asia’s third-largest economy raised export duties for iron ore and steel intermediates, with new iron ores and concentrates tariffs increased to 50 percent from 30 percent and duties on pellets hiked to 45 percent from zero. The government also removed import tariffs for coking coal and coke.
India is one of the major non-mainstream iron ore suppliers for China, accounting for nearly 3 percent of China’s total imports in 2021.
However, China’s purchase from the country fell sharply in the first four months of this year due to increasing demand in India and falling iron ore prices.
“Impact from the changes in iron ore export tariffs in India is not that significant,” said Cheng Peng, an analyst with SinoSteel Futures.
“The key issue is on the supply side, and that would have bigger impact on market expectations (that India could offset disruptions caused by the Ukraine-Russia conflict).”
The most-traded iron ore futures on the Dalian Commodity Exchange, for September delivery, were up 4.4 percent at 864 yuan ($129.18) a ton, after rising as much as 6.9 percent to 884 yuan, their highest May 6, in early trade.
Singapore iron ore futures, for June delivery, rose 1.4 percent to $136 a ton.
Other steelmaking ingredients on the Dalian bourse were mixed, with coking coal falling 0.9 percent to 2,610 yuan a ton while coke prices jumped 1.2 percent to 3,437 yuan per ton.
Steel rebar on the Shanghai Futures Exchange, for October delivery, edged up 0.2 percent to 4,622 yuan a ton and hot-rolled coils gained 0.3 percent to 4,762 yuan per ton.
Shanghai stainless steel futures declined 1.9 percent to 18,595 yuan a ton.
Spot 62 percent iron ore for delivery to north China, as assessed by commodity price reporting agency Argus, jumped to $135.90 a ton on May 20, up 5.7 percent from the previous day and the strongest close since May 6.
Domestic iron ore futures on the Dalian Commodity Exchange were also stronger, rising a more modest 3.4 percent to end at 827 yuan ($123.62) a ton on May 20.
China lowered the five-year loan prime rate by 15 basis points to 4.45 percent in the monthly fixing on May 20, the biggest reduction since the interest rate mechanism was revamped in 2019 and more than the five or 10 basis points tipped by most in a Reuters poll.
The move was viewed by analysts as an attempt to boost the property and construction sectors, which account for about 25 percent of the economy and have been struggling in recent months amid Beijing’s strict zero-COVID policy, which has led to extended lockdowns in several cities including the major financial hub of Shanghai.
Chinese Premier Li Keqiang said last week that Beijing will step up policy adjustments to return the world’s second-biggest economy to what he termed normal growth.
The market interpretation of Li’s comments was that more stimulus measures are likely, with hopes that manufacturing will also receive a boost.
Coupled with signs that Shanghai is starting to emerge from its strict lockdown, the view is that China’s economy is set to rebound in the second half of the year.
All of these measures bode well for iron ore demand and steel output, and there are other factors that suggest iron ore has room to rally further.
The first is that supply from top exporters Australia and Brazil appears to be at levels below potential.
Top shipper Australia is on track to export about 72.45 million tons in May, according to commodity analysts Kpler, which is slightly down from 73.48 million in April.
It’s a similar story for number two exporter Brazil, with May exports likely to be slightly weaker than the previous month, coming in at 24.82 million tons, down a touch from April’s 25.42 million.
There are still concerns about iron ore shipments from Ukraine, which used to supply about 44 million tons a year to the seaborne market, mainly to European buyers.
Ukraine was the fourth-largest iron ore exporter, but Kpler data shows shipments plunging to zero from March onwards, after 2.32 million tons were exported in February.
Another smaller iron ore exporter, India, also looks set to see its shipments plummet, with Argus reporting on Monday that the government has imposed a 50 percent tax on exports of all grades.
This would effectively render India’s exports uncompetitive and they are likely to drop to zero. The South Asian nation shipped out 3.14 million tons in April, according to Kpler.
Another factor is China’s port inventories of iron ore, which have been sliding in recent weeks, even though they are still at levels above where they were at the same time in 2021 and 2020.
