Iron Ore Takes a Step Back While Market Anticipates More Backing from China

Iron ore futures took a step back on Monday, as traders embraced a cautious approach following a week of robust gains. The rally, fueled by the upbeat outlook on China's economy and the short-term demand prospects for the vital steelmaking component, prompted a surge in optimism.

The primary iron ore contract for January, traded on China's Dalian Commodity Exchange, wrapped up the daytime trading session with a modest 1% dip, settling at 811 yuan ($111.27) per metric ton.

Meanwhile, the benchmark September contract for iron ore on the Singapore Exchange, known as SZZFU3, displayed a decline of 1.4%, resting at $112.15 per ton as of 0700 GMT. Notably, it had achieved a four-week pinnacle of $114.85 just last week.

Even with China's cabinet giving the green light to affordable housing planning and construction guidelines in a meeting led by Premier Li Qiang on Friday, a sense of caution remained prevalent in the market, as reported by the Xinhua news agency.

Commenting on the current situation, analysts from National Australia Bank noted, "China's updates on stimulus measures continue to seize the spotlight in terms of future prospects. We anticipate the need for further measures to enhance the overall outlook."

The market's attention is also riveted on the upcoming manufacturing activity data, alongside earnings reports, particularly from major property developers and steel producers in China. These are expected to provide additional insights and guidance, according to market analysts.

"Key players in the region are gearing up to release their manufacturing PMI reports. These figures are likely to reveal ongoing challenges, underscoring the anticipation for more substantial governmental backing to invigorate domestic demand amid persistently weak global demand," ING economists explained.

As the manufacturing data surfaces, including that of China's pivotal trade partners in the steel sector, it could mirror the country's ongoing economic struggles, experts added.

Data from Sunday indicated that profits at China's industrial firms had dipped by 6.7% in July compared to the same period the previous year, marking the seventh consecutive month of this year's downward trend.

The majority of steel benchmarks in Shanghai underwent declines. Rebar (SRBcv1) saw a contraction of 1.3%, hot-rolled coil (SHHCcv1) experienced a dip of 1.4%, wire rod (SWRcv1) slipped by 0.9%, while stainless steel (SHSScv1) managed a slight uptick of 0.1%.

Other essential ingredients in steel production also saw minor setbacks, with coking coal (DJMcv1) and coke (DCJcv1) retreating by 0.8% and 1.5%, respectively.

Source : Reuters (Reporting by Enrico Dela Cruz)