China's Stimulus Spurs Ongoing Iron Ore Surge

Dalian Iron Ore Futures Soar on China's $137 Billion Stimulus

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Dalian iron ore futures soared to their highest point in five weeks on Wednesday, while the Singapore benchmark continued its upward trend for the third consecutive day, all thanks to China's proactive steps to boost its economic growth.

China, being the world's largest steel producer and consumer, witnessed the approval of a substantial 1 trillion yuan ($137 billion) sovereign bond issuance by its top parliamentary body. This bold move significantly expanded the country's budget deficit and injected fresh momentum into the market.

The January iron ore contract on the Dalian Commodity Exchange wrapped up daytime trading with a remarkable 3.3% gain, closing at 872 yuan ($119.22) per metric ton, after reaching as high as 878.50 yuan earlier in the session.

Meanwhile, over on the Singapore Exchange, the benchmark November contract for this essential steelmaking ingredient saw a 0.9% rise, reaching $117.10 per ton as of 0700 GMT.

Chinese steel price indicators also displayed positive movements, with rebar surging by 2.1%, hot-rolled coil increasing by 1.7%, and both wire rod and stainless steel climbing by 0.9% each.

In light of these developments, analysts from Huatai Futures noted, "Market sentiment has received a short-term boost, and prices are anticipated to remain robust."

The enthusiasm extended to other steelmaking components on the Dalian exchange, with coking coal and coke registering impressive gains of 5.5% and 4.8%, respectively.

Baoshan Steel (600019.SS) expressed optimism about China's steel demand, foreseeing substantial support from the infrastructure sector in the last quarter of this year and throughout 2024, thanks to the recent stimulus measures.

Nonetheless, analysts cautioned that the ongoing concerns about China's property market and the unfavorable profit margins for mills dealing with sluggish sales and high raw material expenses could put a damper on these gains, potentially leading to a correction in the market. Robert Rennie, the head of financial market strategy at Westpac, pointed out, "The onshore markets tend to rally on 'good news' for several sessions before reality and gravity come into play. This new policy initiative's impact is expected to carry into the next year, indicating that we might still face weak demand for iron ore throughout Q4."

Source : Reuters (Reporting by Enrico Dela Cruz)