Spot 62% iron ore for delivery to north China, as assessed by commodity price reporting agency Argus, jumped to $135.90 a tonne on May 20, up 5.7% from the previous day and the strongest close since May 6.

Domestic iron ore futures on the Dalian Commodity Exchange were also stronger, rising a more modest 3.4% to end at 827 yuan ($123.62) a tonne on May 20.

China lowered the five-year loan prime rate by 15 basis points to 4.45% in the monthly fixing on May 20, the biggest reduction since the interest rate mechanism was revamped in 2019 and more than the five or 10 basis points tipped by most in a Reuters poll.

The move was viewed by analysts as an attempt to boost the property and construction sectors, which account for about 25% of the economy and have been struggling in recent months amid Beijing’s strict zero-covid policy, which has led to extended lockdowns in several cities including the major financial hub of Shanghai.

Chinese Premier Li Keqiang said last week that Beijing will step up policy adjustments to return the world’s second-biggest economy to what he termed normal growth.

The market interpretation of Li’s comments was that more stimulus measures are likely, with hopes that manufacturing will also receive a boost.

Coupled with signs that Shanghai is starting to emerge from its strict lockdown, the view is that China’s economy is set to rebound in the second half of the year.

All of these measures bode well for iron ore demand and steel output, and there are other factors that suggest iron ore has room to rally further.

The first is that supply from top exporters Australia and Brazil appears to be at levels below potential.

Top shipper Australia is on track to export about 72.45 million tonnes in May, according to commodity analysts Kpler, which is slightly down from 73.48 million in April.

It’s a similar story for number two exporter Brazil, with May exports likely to be slightly weaker than the previous month, coming in at 24.82 million tonnes, down a touch from April’s 25.42 million.

Ukraine out
There are still concerns about iron ore shipments from Ukraine, which used to supply about 44 million tonnes a year to the seaborne market, mainly to European buyers.

Ukraine was the fourth-largest iron ore exporter, but Kpler data shows shipments plunging to zero from March onwards, after 2.32 million tonnes were exported in February.

Another smaller iron ore exporter, India, also looks set to see its shipments plummet, with Argus reporting on Monday that the government has imposed a 50% tax on exports of all grades.

This would effectively render India’s exports uncompetitive and they are likely to drop to zero. The South Asian nation shipped out 3.14 million tonnes in April, according to Kpler.

Another factor is China’s port inventories of iron ore, which have been sliding in recent weeks, even though they are still at levels above where they were at the same time in 2021 and 2020.

Inventories stood at 137.25 million tonnes in the week to May 20, down from a 2022 peak of 160.95 million on Feb. 18, but still above the 128.35 million from the same weeks in 2021 and the 110 million in 2020.

In some ways it’s not the absolute level of inventories that are key, it’s the pace at which they are declining, and the 15% slump since the February high indicates a fairly rapid drawing on available stockpiles and the potential for restocking demand.

There are also signs that China is ramping up its steel output after the winding back of winter pollution curbs and the lifting of some covid-19 restrictions.

April output rose 5.1% from the prior month to 92.78 million tonnes, although this was also still 5.2% below the level of April 2021.

This shows there is still scope to ramp up steel production further, and this is also a quick way to boost the economy, because even if the steel produced isn’t needed immediately, it’s easy to stockpile for future use.

Overall, the picture that is emerging is that the long-anticipated China stimulus measures are starting to come through, covid-19 is potentially being beaten back and the government is wanting a return to solid growth in the second half of the year. All positive for iron ore.