The iron ore price has posted its largest one-day gain on record after Chinese officials pledged to spend more on building railways and roads.
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The information service points out that today’s absolute day-on-day rise “is roughly half of the price of contracted iron ore during the early 2000’s under the old “annual benchmark” system, which ended in April 2010″. The surge was preceded in Asia by a rally in futures, with the most-active contract on Singapore Exchange Ltd. climbing 21 percent to $60 and prices on the Dalian Commodity Exchange rising by the daily limit. “Investors are expecting further monetary easing by the Chinese government to boost steel demand”.
The Pilbara’s biggest miner, Rio Tinto, rose 3.5 per cent to $46.47 and BHP Billiton was up 5 per cent to $18.55, while the embattled Atlas Iron (up 47 per cent to 2.2¢) and BC Iron (52 per cent to 19¢) recovered much-needed investor support.
The report states China needs to deleverage, which does not fit with the announced 6.5-7 per cent growth target.
Chinese steel mills had earlier been restocking supplies following the Lunar New Year holiday last month, but the recent strong gains in the iron ore price have prompted speculation that mills are holding onto the raw commodity as a bet on further gains.
The rally followed losses of around 70 percent in the past three years as iron ore was hit by a global glut and weaker Chinese steel demand. China set an economic expansion target of 6.5 percent to 7 percent on Saturday, and to reach that goal the government will expand the money supply and permit a record high deficit. “The insane surge in futures prices has surprised traders and steel mills, as they haven’t seen a corresponding increase in physical orders”.
Along with coking coal, iron ore is a key ingredient in the steel making process.
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There’s also speculation that signs of a turnaround in China’s property market may help to support demand for steel, aiding iron ore. The “market believes the demand for steel will be increased with the recovery of real-estate market”. The steel price should fade in 2H.
