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Iron ore prices continued its remarkable rally after China announced another stimulus package aimed at boosting the economy. It jumped to a high of $129.55 on Thursday, its highest point in over 10 months. It has soared from the December low of $92.7.
China economic recovery
Iron ore is an important commodity that is used to manufacture steel, one of the most important metals globally. Steel is mostly used in the construction industry, with China being the biggest buyer.
Iron ore price has been in a strong rally recently as signs emerged that the Chinese economy was recovering. The most recent data by the National Bureau of Statistics (NBS) revealed that the country’s industrial production and retail sales bounced back in October.
Iron ore and other industrial metals like silver and copper do well when the Chinese economy is outperforming. Indeed, copper price has risen by almost 10% from its lowest point this year. Silver is up by over 14% from its October lows.
The most recent catalyst for iron ore prices is the decision by China’s government to end the ongoing housing crisis. The government is now ramping up pressure on banks to infuse over $446 billion in the housing sector.
According to Bloomberg, policymakers have created a list of 50 developers whose projects should be funded. These companies include Country Garden and Sino-Ocean Group. The goal is to ensure that all incomplete projects are completed.
If this plan works, it means that demand for iron ore will rise since China has over 60 million incomplete apartments. Still, there are concerns about whether these measures will work since China’s banks are suffering from higher delinquencies and falling margins. In a note, an analyst at UOB said:
Watch here: https://www.youtube.com/embed/5XVGO7o8B0s?feature=oembed“Like Morphine lessens the pain, but takes time to help in recovery, this is to make sure the delivery of unfinished projects, and to stop the worsening of worries on China’s economic outlook.”
Iron ore mining stocks jump
Rio Tinto, Anglo American, BHP, Fortescue
The ongoing price action of iron ore has led to a resurgence of iron ore stocks. In London, the Rio Tinto share price has surged to a high of 5,572p, the highest point since March 9th. It has jumped by over 22% from the lowest point this year.
In Australia and the US, BHP stock has jumped by 17% from the YTD low. It now sits at the highest point since January. Fortescue Metals and Anglo American shares have also jumped.
All these companies make most of their money mining and selling iron ore internationally. Steel companies, which buy and smelt iron ore to steel have also rebounded. This includes companies like Tata Steel. ArcelorMittal, POSCO, and Nippon Steel.
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