Surprising Iron Ore Comeback Sparked by Potential Boost in Chinese Property Sector

Iron ore futures experienced a positive surge on Wednesday, riding a wave of optimism fueled by the potential for new initiatives from China aimed at bolstering its real estate sector, which stands as the world's largest consumer of steel in the second-largest global economy.

The key January iron ore contract, actively traded on the Dalian Commodity Exchange (DCE) in China, closed the daytime trading session with an impressive 1.97% ascent, reaching 829 yuan ($113.68) per metric ton. This accomplishment nearly mirrored the recent three-week peak of 834 yuan per ton achieved just this Monday.

Over in Singapore, the benchmark September iron ore on the Singapore Exchange exhibited a similar upward trajectory, marking a 1.76% gain to reach $114.15 per metric ton as of 0710 GMT.

In a noteworthy development, Guangzhou took the lead among major Chinese cities by announcing a relaxation of mortgage restrictions on Wednesday. This pivotal decision followed the commitment of several state-owned banks in China to soon reduce interest rates on existing mortgages. This concerted effort from Beijing aimed at revitalizing the property sector has been well-received, boosting overall market sentiment.

Commenting on these positive moves, analysts from ING Bank highlighted, "China's introduction of measures to support the struggling property sector has had a broad positive impact on sentiment."

Furthermore, a boost to market confidence came in the form of Beijing's decision to halve the stamp duty on stock trading.

Within this encouraging backdrop, other components essential to steel production demonstrated strength as well. Coking coal and coke, traded on the Dalian Commodity Exchange, showed notable gains of 2.5% and 1.99%, respectively.

Turning to the Shanghai Futures Exchange, a majority of steel benchmarks followed suit and posted gains. Rebar, a vital construction material, showcased a solid 0.95% rise to reach 3,713 yuan per ton. Meanwhile, hot-rolled coil and wire rod recorded respectable increases of 0.39% and 1.64% respectively.

While celebrating the positive influence of the recent stimulus efforts, industry insiders maintain a cautious stance. Cheng Peng, an analyst based in Beijing at Sinosteel Futures, remarked, "Although prices gained strength due to the latest stimulus measures, we anticipate that the resistance level for steel rebar at 3,750 yuan per ton could prove challenging to breach in the immediate term. Supply-side pressures persist, and demand hasn't shown substantial improvement yet."

The consistent decline in the profitability of steel mills over the past three weeks has led analysts at Sinosteel to predict that certain mills might consider reducing production to offset losses.

Conversely, stainless steel exhibited a slight decrease of 0.1%, offering a minor contrast in an otherwise upbeat market environment.

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