Iron ore price rally gains steam

The price of iron ore gapped higher again on Monday after top consumer China surprised markets with the third interest rate cut in six months following data showing a steep drop-off in the country's trade with the world in April.

The benchmark 62% Fe import price including freight and insurance at the Chinese port of Tianjin added $2.00 or 3.3% to $62.50 a tonne according to data provided by The SteelIndex, a 10-week high.

The Metal Bulletin's 62%-index at the ports of Qingdao-Rizhao-Lianyungang also continued to improve with the price climbing 1.6% to $63.02 a tonne. The rally in lower grade ore saw MB's 58% Fe fines jumping to $54.17, the highest since January.

A rally that began on April 16 seemed to run out of steam at the beginning of May, but today's advance brings to 33% the commodity's gains since the spot price hit record lows at the beginning of April. The price slumped 47% last year and entered 2015 above $70 a tonne.

Beijing's decision to stimulate lending and make it easier for banks to provide credit by also cutting reserve requirements for financial institutions comes amid growing signs of a slowdown in the world's second largest economy.

On Friday, against expectations of a rebound in April, Chinese exports dropped more than 6%. But the real shocker was imports which plummeted 16.2% according to customs data.

Compare to the headline figure the country's iron ore imports remained relatively robust, declining 3.8% year-on-year in April. The country took in 80.2 million tonnes of the steelmaking raw material last month compared with 83.4 million tonnes a year earlier. Year to date China's imports still show gains compared to 2014 record-breaking pace.

The interest rate cut is expected to bring immediate relief to the country's debt-laden state-owned enterprises, many of which operate in the resources and metal industries. Stimulus spending should also boost infrastructure spending and shore up the struggling housing industry which is responsible for a large chunk of steel demand.

Steel consumption in China fell last year for the first time since 1995, but the latest figures from the country's steelmakers show a 3.9% pickup in production to an average of 1.79 million tonnes per day at the end of April.