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.
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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.
AdvertisementCrude 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