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Highlights
- China's latest stimulus sparks optimism in commodities.
- Iron ore futures rise above US$100/tn, boosting Australian miners.
- Fed rate cuts add to bullish sentiment in metals trading.
China’s economic policies have been a focal point throughout 2024, with multiple stimulus measures aimed at reviving the nation’s economy. While earlier efforts saw limited impact, this week’s announcement appears to be shaking up global markets, particularly in commodities.
China has been flirting with deflation since its recovery from the intense COVID-19 lockdowns and the unrest that followed in early 2023. The country’s recent moves include cutting interest rates and easing mortgage requirements. These are not new measures, as similar steps were taken earlier this year in February, May, and July, which left markets largely unfazed.
Why This Stimulus is Different
The key factor driving this renewed optimism is the timing of the stimulus, coming on the heels of the US Federal Reserve's first significant rate cut of 50 basis points, which took place last week. This shift has significantly altered market sentiment, particularly in the commodities sector, where traders are now more optimistic about growth.
How Commodities are Responding
Commodities markets have responded enthusiastically to the news, with iron ore, copper, gold, and other key metals showing substantial week-on-week (WoW) gains as of Friday, September 27th, 2024:
- Iron Ore: +9.8% WoW to US$100.70/tn
- Copper: +7% WoW to US$4.58/lb
- Gold: +1.9% WoW to US$2,670/oz
- Silver: +2.2% WoW to US$31.85/oz
- Lead: +4% WoW to US$2,139/tn
- Aluminium: +5.7% WoW to US$2,627/tn
- Zinc: +7.6% WoW to US$3,094/tn
- Nickel: +2.9% WoW to US$16,806/tn
Iron Ore A Key Focus for Australia
For Australian markets, iron ore's resurgence is particularly notable. Iron ore futures in Singapore are back above US$100 per ton, a critical benchmark for Australia’s major iron ore miners. This comes despite a recent warning from China’s state-owned metallurgical newspaper, which described iron ore price climbs to this level as "irrational."
Interestingly, in late August, Australian iron ore miner CuFe Ltd (ASX:CUF) paused operations at its iron ore projects, reflecting concerns about market conditions at the time. However, with renewed confidence in the market, it could be a turning point for the industry.
A Shift in Investor Sentiment
The commodities surge is also reshaping investment patterns. Australia’s big iron ore miners have seen a strong week, with investors shifting focus away from the nation’s major financial institutions and into the mining sector. Brent crude oil prices, which had briefly surged to US$75 per barrel earlier this week, have dipped back down to US$71, reflecting some skepticism about how long-lasting the Chinese stimulus impact will be.
As the global market awaits further developments from China, the renewed momentum in commodities, particularly iron ore, will be closely watched by Australian investors and miners alike.
