Surging Iron Ore Prices Continue Upward Momentum Amid Positive Outlook for Chinese Demand

Iron ore futures are on a winning streak, showcasing their strength with another surge in prices in China, exceeding a remarkable 5% increase. The driving force behind this surge is the growing optimism surrounding demand in the world's leading steel producer, powered in part by well-received policy initiatives.

This positive momentum is further bolstered by the absence of any definitive directives from Chinese regulatory bodies, which has resulted in steel mills maintaining their production rates and keeping this year's output consistent with 2022 levels. Additionally, the reduced availability of scrap steel and lean inventories have also lent their support to the upward trajectory of steelmaking ingredient prices.

The most active iron ore contract for January, traded on the Dalian Commodity Exchange, wrapped up its daytime trading session with a 3.7% gain, closing at 817 yuan ($112.13) per metric ton. This marked an impressive 10-session rally that accumulated gains of around 14%, with an earlier intraday peak of 5.6%.

Over on the Singapore Exchange, the September contract, which serves as the benchmark for iron ore, was in sync with the positivity, boasting a 2.1% rise at $112.95 per ton as of 0712 GMT. It even scaled heights of $113.90, a summit untouched since July 26.

The uptrend didn't limit itself to iron ore alone; other key components in steelmaking showcased their own advances. Coking coal and coke, both listed on the Dalian exchange, rejoiced with gains of 4.1% and 2.9%, respectively, further adding to the optimism.

This market-wide enthusiasm is largely a result of China's ongoing commitment to prop up its economy and the current balance of supply and demand. Analysts have taken note of this dynamic. ANZ commodity strategists highlighted, "The market is also buoyed by the absence of government directives to cut steel production," reflecting the sentiment in the industry.

China's steel production for January-July clocked in at 626.51 million tons, representing a 2.5% increase compared to the previous year's figures. This goes against the prior anticipation that Beijing would put a cap on steel output to mitigate carbon emissions.

The landscape shaped by reduced scrap steel supply has caused a persistent tightness in iron ore supply and demand, leading to notably low inventories across the chain. Huatai Futures analysts underscored this, stating, "Affected by the reduction in scrap steel supply, iron ore supply and demand continue to be tight, and the inventory at various links is at a low level."

Shanghai's steel benchmarks mirrored the positive trend, with increases observed across rebar, hot-rolled coil, and wire rod. Only stainless steel experienced a minor dip, alluding to the broader upbeat atmosphere in the sector.

Source : Reuters (Reporting by Enrico Dela Cruz)