Markets

Iron jumps by record on Chinese growth hopes

Market goes ‘beserk’ as Chinese government’s plan to buttress economic growth boosts outlook

Iron ore is enjoying its biggest rally in years, outpacing copper and oil so far in 2016, but still weak forward prices show it may be tough to stretch the bullish outlook. Improving steel prices in top market China are helping fuel iron ore’s climb as producers gear up for a seasonal uptick in demand. Yet there is no shortage of doubters who see gains in the bulk commodity as fleeting given a large glut and challenges for China’s economy. (Photograph: Pichi Chuang/Reuters)

Mon Mar 7 2016 - 14:51

Iron ore soared the most ever after Chinese policy makers signaled their willingness to buttress economic growth, boosting the outlook for steel consumption in the top user and igniting speculation that some investors who’d bet against the market had been caught out.

Ore with 62 per cent content delivered to Qingdao jumped 19 percent to $63.74 a dry metric ton, Metal Bulletin data show. That’s the biggest gain in daily data going back to 2009 and the highest price since June. The surge was preceded in Asia by a rally in futures, with the most-active contract on Singapore Exchange climbing 21 per cent to $60 and prices on the Dalian Commodity Exchange rising by the daily limit.

“The iron ore and steel markets have gone berserk -- they’ve departed from fundamentals and are heavily driven by sentiment,” Zhao Chaoyue, an analyst at China Merchants Futures Co. in Shenzhen, said before the Metal Bulletin price was published. “Investors are expecting further monetary easing by the Chinese government to boost steel demand.”

Australia's Fortescue Metals jumped 24 per cent in Sydney trading, where Rio Tinto Group and BHP Billiton also climbed after futures prices jumped. Gains in London were muted. Rio, the second-biggest mining company, rebounded from an earlier decline in London trading and was up 2 per cent by 1:04 p.m. local time, while BHP rose 1.1 per cent.

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Iron ore has powered higher in 2016 as steel prices have have strengthened, undermining forecasts for further losses driven by mounting low-cost supply from Australia and Brazil and weakening demand in China. At the annual National People’s Congress at the weekend, the authorities said they’d allow a record high deficit and higher money-supply target to support growth of 6.5 per cent to 7 per cent. At the same time, they also vowed to help cut overcapacity in steel, potentially curbing demand for iron ore.

“There may be some short-covering in the futures markets today,” said Xu Huimin, an analyst at Huatai Great Wall Futures Co. in Shanghai, referring to investors closing bets on declines. “The crazy surge in futures prices has surprised traders and steel mills, as they haven’t seen a corresponding increase in physical orders.”

Bloomberg

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