Unbelievable Shift! Is China's Demand Changing the Iron Ore Game?

Iron ore in Dalian saw a slight decline on Tuesday, while its Singapore counterpart had a small uptick. Market participants are trying to strike a balance between China's efforts to bolster its real estate market and the potential effects of steel production limits on the demand for iron ore.

The predominant January iron ore contract on the Dalian Commodity Exchange concluded its trading day 0.6% down at 846.50 yuan ($116.03) for every ton. This came after a positive streak spanning four days.

Meanwhile, over at the Singapore Exchange, the heavily traded October iron ore increased by 0.7% to stand at $115.50 per ton by 0745 GMT. Earlier in the day, it reached a peak of $117.25, marking its highest value since the beginning of April.

Recently, Beijing introduced various strategies aiming to boost its slowing economic pace. Notably, there were certain relaxations made to borrowing guidelines to support prospective homeowners. This has given the iron ore market an additional push, especially after its notable performance in August.

However, market enthusiasts are advised to exercise caution. Anticipated curbs in steel production later this year in China, the largest consumer of iron ore globally, should be on their radar. As Westpac analysts put it, "The key point of discussion is the upcoming steel production reductions. The real curiosity is about its commencement date."

China is committed to maintaining its steel production cap this year, states the chief executive of the government-run Baosteel, reinforcing a two-year strategy aimed at curbing the carbon footprint of the sector.

From January to July, there was a 2.5% surge in China's crude steel production compared to the same timeframe the previous year.

Steel indexes in Shanghai didn't fare too well either. Rebar decreased by 1%, hot-rolled coil went down by 0.7%, wire rod declined by 0.6%, and stainless steel also saw a 0.7% drop.

On the brighter side, other materials essential for steelmaking on the Dalian exchange experienced a surge, although not at their peak. Coking coal, for instance, saw a rise of 2.8% in a consistent five-day upward trend. This is attributed to robust demand and potential supply constraints due to recent safety evaluations at Chinese mines. Additionally, coke saw a growth of 0.7%.

Source : Reuters (Reporting by Enrico Dela Cruz)