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Iron ore leaps on easing China liquidity concerns, upbeat demand outlook

Iron ore futures extended gains on Tuesday as concerns over tight market liquidity in China eased, with prices further bolstered by a positive demand outlook for the steelmaking ingredient in the world’s top steel producer.

The most-traded May iron ore on China’s Dalian Commodity Exchange rose 4.3% to 1,061.50 yuan ($164.59) a tonne by the end of daytime trading, rising for a fourth straight session.

March iron ore on the Singapore Exchange climbed 2.6% to $158.65 a tonne by 0705 GMT, up for a second day.

“It appears to me the sharp drawdown in price in late-January was due to liquidity concerns in China, where the 7-day interbank repo rate rose above 3% for four sessions,” said Howie Lee, an economist at OCBC Bank in Singapore.

“That has since been alleviated and iron ore prices, in tandem, have returned (to) around the breakeven price of $150/mt, suggesting the demand for iron ore remains intact,” he said.

Short-term money rates eased last week as signs of liquidity tension in the interbank money markets started to fade. central bank said on Monday its prudent monetary policy would be flexible, targeted and appropriate, with no sudden shifts, as it pledged to continue with interest rate reform. iron ore in China traded at $157.50 a tonne on Monday, according to SteelHome consultancy. SH-CCN-IRNOR62

Signs of improvement in steel markets outside China also helped boost iron ore prices, analysts at ANZ said in a note, citing profits of and better 2021 prospects highlighted by Japanese steelmakers.

However, trading in spot and futures markets for iron ore and steel has thinned ahead of China’s week-long Spring Festival holiday beginning on Thursday.

Rebar on the Shanghai Futures Exchange rose 2.3%, hot-rolled coil SHHCcv1 advanced 2.4% and stainless steel added 0.7%.

Coking coal leapt 1.7% and coke climbed 1.4%.
Source: Reuters

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