Iron ore price surges 5%

Iron ore price surges 5%

"Grasp revolution, increase production, relentlessly strike at imperialism, revisionism and reactionaries!"

The iron ore price roared ahead on Tuesday with Northern Chinese import prices surging nearly 5% on an improving outlook for the Chinese economy.

The 62% Fe benchmark import price including freight and insurance at the port of Tinjian tracked by The SteelIndex added $3.30 or 4.9% to $71.20 a tonne, the highest since November 18.

The price of the steelmaking raw material has now clawed back 8.5% since hitting levels last seen May 2009 last week.

Iron ore's resurgence is thanks to stimulus measures announced by the People's Bank of China over the weekend that is set to free up some $800 billion in funds available for loans at commercial banks.

On top of the new lending and bank deposition rules, interest rates in the world's second largest economy is also on course for further cuts in the new year while the scrapping of housing purchase limits targets the troubled property sector directly.

China imports more than two-thirds of the global seaborne trade expected to hit 1.4 billion tonnes in 2015 and forges nearly as much steel as the rest of the world combined.

The country's decades long urbanization push and construction boom has made it the driving force behind commodity price rises over the last decade or more.

But growing fears of a property bubble and overinvestment in infrastructure, coupled with a flood of new iron ore supply, have seen prices slide 47% since the start of the year.

Beijing is attempting to accelerate the slowest GDP growth rate in decades, expected to hit 7% in 2015. Despite the tepid economy, the country would still be adding some $700 billion to gross domestic product in 2015 (and that’s excluding Hong Kong).

That's greater than the size of mainland China’s entire economy in 1994, when growth rates peaked at a stunning 30% year-on-year. $700 billion is also bigger than Switzerland’s economy and worth almost 2 South Africas and 4 New Zealands.

Image by chinaposters.net on Flickr.