China's New Stimulus Boosts Iron Ore Sentiment

China's Iron Ore Market Surges on Stimulus and Low Inventories

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Iron ore enjoyed a significant boost on Monday, fueled by positive investor sentiment following China's latest stimulus measures. This surge in optimism overshadowed concerns arising from production cuts in certain steel mills due to narrowing profit margins.

The most actively traded January iron ore contract on China's Dalian Commodity Exchange (DCE) closed the daytime trading session 2.86% higher at 862 yuan per metric ton, marking its highest level since September 25th.

Meanwhile, the benchmark November iron ore contract on the Singapore Exchange (SZZFX3) saw a 2.46% uptick, reaching $117.1 per ton as of 0701 GMT, its highest point since October 3rd.

China's central bank injected fresh liquidity into the banking system by conducting medium-term lending facility (MLF) operations worth 789 billion yuan. This move came as 500 billion yuan worth of MLF loans were set to mature, further enhancing market confidence.

Huatai Futures analysts noted, "Prices remained robust due to limited supply of steel scrap, which drove increased demand for iron ore."

Additionally, low inventories contributed to the positive sentiment in the iron ore market. Stock levels decreased for the fifth consecutive week, reaching 105.2 million tons as of October 13th, the lowest figure since June 2020, according to data from consultancy Steelhome.

Nevertheless, ANZ bank analysts cautioned that the ongoing crisis in China's property sector, the world's largest steel consumer, could continue to dampen demand despite further stimulus measures.

Other essential ingredients in steel production also experienced gains, with coking coal and coke on the DCE rising by 3.57% and 4.54%, respectively. This increase was driven by robust demand and expectations of reduced supply.

Higher prices for raw materials lifted steel benchmarks on the Shanghai Futures Exchange, even as downstream demand remained relatively subdued. Rebar advanced by 1.05%, hot-rolled coil added 1.32%, wire rod gained 0.15%, and stainless steel rose by 1.05%.

According to data from consultancy Mysteel, profitability among 247 blast furnace-based steel mills surveyed declined for the third consecutive week, settling at 24.24% for the week ending October 13th.

Source: Reuters (Reporting by Amy Lv and Dominique Patton)