Iron ore soars on China’s bigger-than-expected rate cut

Benchmark iron ore futures in Dalian and Singapore surged on Friday, adding to weekly gains as China cut its benchmark reference rate for mortgages by an unexpectedly wide margin, boosting hopes for further support to revive the economy.

The most-traded September iron ore contract on China’s Dalian Commodity Exchange DCIOcv1 ended daytime trade 5.3% higher at 842.50 yuan ($126.23) a tonne, rebounding after a two-day slump.

On the Singapore Exchange, the steelmaking ingredient’s most-active June contract rallied 6.1% to $134.25 a tonne by 0714 GMT.

Steel prices on the Shanghai Futures Exchange and other steelmaking inputs in Dalian also advanced.

Shanghai rebar SRBcv1 gained 2.6%, while hot-rolled coil rose 2.3% and stainless steel jumped 3.4%.

Dalian coking coal DJMcv1 added 3.2% and coke climbed 4.3%.

China, in a monthly fixing, lowered the five-year loan prime rate (LPR) by 15 basis points to 4.45%, the biggest reduction since the central bank revamped the interest rate mechanism in 2019 and more than the five or 10 basis points tipped by most in a Reuters poll. The one-year was unchanged at 3.70%.

The rate-cut comes at a time when central banks around the world are in a race to tighten monetary policy to tackle intensifying inflationary pressures.

It also follows Beijing’s oft-repeated pledge of further support to cope with COVID-19 challenges in China, the world’s top steel producer.

“The cut suggests that China is making great efforts to achieve its 5.5% growth target,” ANZ analysts said in a note.

A key drag on growth has been the property sector, which accounts for a sizeable portion of China’s overall steel demand.

China’s new-home prices in April fell for the first time month-on-month since December, depressed by fragile demand in small cities and COVID-19 lockdowns.

“We believe local governments will ease curbs on properties more aggressively going forward,” ANZ analysts said.
Source: Reuters (Reporting by Enrico Dela Cruz in Manila; Editing by Subhranshu Sahu and Uttaresh.V)