The iron ore complex is one market that is properly rallying going into Christmas and the Chinese New Year with spot prices up nearly 5% to cross the $120 barrier again for a new three month high. Singapore futures rose nearly 7% on Monday but local Dalian futures were off 1%:
It’s all about the confidence trick however, as Chinese authorities try to ease concerns about much slower steel demand amid a very real structural slowdown in the economy. This was helped yesterday with a drop in the 3 year lending rate, but its not a big change yet.
Capital Economics chief Asia economist Mark Williams said the overall impression was monetary policy was being eased in China “but not dramatically”.
“We expect a further 45bp of cuts to the One-Year LPR during 2022,” he said. “This would represent a stronger monetary policy response than most currently anticipate – the consensus prior to today’s move is for the LPR to remain on hold for the foreseeable future.”
ANZ senior China strategist Zhaopeng Xing said the fact the 5 year loan rate was left unchanged, however, suggested China would not use its under water property sector, a key end market for steel and iron ore, to stimulate its economy.
But steel production continues to ramp up:
“Analysts expect a rebound in steel output as Beijing’s yearly targets have been met, prompting mills to resume production,” resources sector advisor and broker SP Angel said in a Dec. 17 note.With China churning out 946.36 million tonnes of crude steel during January-November, down 2.6% from the year-ago period, there is scope for mills to ramp up production as the target is to limit this year’s output to no more than last year’s volume of 1.05 billion tonnes in order to control emissions.
Crude steel output in the first 10 days of December climbed 12% from a month earlier, ANZ analysts said, citing data from the China Iron & Steel Association