Iron Ore to focus on Stimulus, Shrugs Off China’s Rising Covid-19 Concern

The iron ore market has opted to concentrate on China’s efforts to stimulate its property sector rather than on the rising issues over the potential economic fallout due to the increasing number of COVID-19 cases in the country and public anger at efforts to control the outbreaks.

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The spot price of benchmark 62% iron ore for delivery to north China dropped slightly on November 28, 2022, to end at $98.60 per ton from the previous close of $99.25. The figures have been assessed by the commodity price reporting agency Argus.

The recent dip was matched by the December iron ore futures traded in Singapore, which dropped to $98.14 per ton from $99.15 on November 25, 2022. However, iron ore contracts traded on Dalian Commodity Exchange ended at 753.50 Yuan ($104.65) per ton on Monday. The price was a gain of 2% from the close on November 25, 2022.

The slight dip in the global prices of spot iron ore and the modest gain for the main Chinese domestic price shows the various perceptions held by traders in those markets.

A lot of international traders may be more concerned by the country’s adherence to its very strict zero-Covid measures than China’s domestic investors.

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However, the overall message from the price action seems to be that the rising cases of Covid-19 and the street protests against the government’s adherence to its stern zero-Covid strategy are insufficient to change the entire positive outlook for iron ore.

Protests against the country’s policies on Covid-19 took place over the weekend in different cities, with analysts saying they were the biggest since the violent 1989 Tiananmen Square protests.

The impact of any ongoing street demonstrations may become more vital if they continue, persist, and escalate or if they lead to either even stricter measures against the Covid-19 virus or easing restrictions in a bid to appease public opinion.

Outside of the uncertainties brought about by the Covid-19 virus, the picture nonetheless looks brighter for iron ore as the country, the biggest buyer of the steel raw material in the world looks determined to revive its ailing property sector.

China’s biggest commercial banks reportedly pledged to provide at least $162 billion in new credit to property developers last week, the latest in a series of steps taken to restore confidence in the housing sector.

The question for the market, however, is whether or not the efforts to stimulate the housing construction and infrastructure sectors are enough to encourage steel demand or if a slowing global economy cuts demand from areas like those in the manufacturing sectors.

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Positive Signals for Iron Ore

There are a lot of positive signals for iron ore with China’s port inventories below levels prevailing at the same time a year ago even though they have been going up in recent weeks.

Stockpiles were at 138 million tons in the seven days to November 25, up from 135.45 million a week prior, but below the 150.90 million in the same week a year ago.

Iron ore inventories will typically pick up in the northern winter as steel mills build up stocks ahead of the strong demand for steel in the coming spring. In February 2022, iron ore inventories peaked at 160.95 tons, hinting that there is scope for them to keep building in the coming months.

The country’s iron ore imports appear to be going for a relatively strong outcome in November, with Refinitiv estimating the seaborne arrivals at 106.8 million tons, while commodity analyst Kpler expects a slightly lower but still strong 99.13 million tons.

For the month of October, official customs data for iron ore imports are at 94.98 million tons. Thus, it is more likely that November’s outcome will be relatively stronger.

The vessel-tracking data and customs numbers do not align completely due to the difference as to when cargoes are assessed as having been landed and cleared but the tracking data gives valuable information about the direction of imports.

While stimulus efforts are increasing both in size and scope, the market stays at risk from the global health scare situation.

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