Iron ore price extends rally on China post-lockdown demand expectations

Traders pushed prices higher despite China’s Dalian Commodity Exchange raising trading limits and margin requirements for some of its futures products, including iron ore, ahead of the April 5 Tomb Sweeping Day holiday.

The changes to trading limits and margins will take effect from settlement on March 31.

The most-traded Dalian iron ore for September delivery ended daytime trade 3% higher at 895 yuan ($140.90) a tonne, after touching 898 yuan, the highest since August 9.

According to Fastmarkets MB, benchmark 62% Fe fines imported into Northern China were changing hands for $158.20 a tonne during morning trading, up 3.4% compared to Tuesday’s closing.

Optimism over prospects of additional policy support to shore up the world’s second-largest economy and biggest steel producer, and signs of a resilient Chinese industrial sector, have provided strong support to iron ore.

“Traders are buying the steelmaking ingredient following data (showing) that Chinese industrial companies enjoyed strong profit growth in Jan-Feb 2022,” SP Angel analyst John Meyer said, referring to data released earlier this week.

Production in Asia to peak by 2025
Fitch Solutions Country Risk and Industry Research expects iron ore production across Asia Pacific to rise from 2.16 billion tonnes in 2022 to 2.27 billion tonnes in 2025, after which the analyst said it will enter a structural decline, falling to 2.17 billion tonnes by 2031.

“Further, the expected continued slowdown in the growth of the Chinese economy is expected to bring down iron-ore and steel prices as investments into real estate declines owing to excessive leverage and financial risk; however, in the short term, the government seems to be gearing up infrastructure investment as stimulus,” said Fitch.

Fitch expects China and Australia to remain the dominant drivers of regional supply and demand outlook.

“Australia’s wealth of high-quality deposits will continue to give Australian miners and projects a competitive pricing edge, aided by strong policy support for green hydrogen for steelmakers.”