Iron ore price up as China vows to support economy

Steel worker (Stock Image)

The iron ore price rebounded on Tuesday after China pledged more support to help revive an economy that’s been imperiled by an escalating virus outbreak.

Benchmark 62% Fe fines imported into Northern China rose as much as 1.3% to $138.32 per tonne, as China’s central bank vowed to increase monetary support to the real economy, especially for industries and small businesses hit hard by the pandemic, according to a statement on Tuesday.

That follows the People’s Bank of China’s decision Monday to cut the amount of money that banks need to have in reserve for their foreign currency holdings, an attempt to help limit the drop in the yuan.

On Monday, the metal price plunged nearly 9% on fears that the fast-spreading omicron strain of the covid-19 virus had taken hold in Beijing.

“Policy may be the salvation for China’s iron ore and base metal demand this year,” Vivek Dhar, commodities analyst at Commonwealth Bank of Australia, wrote in a note.

“Policymakers are hoping for a soft landing, helping stabilize commodity demand in the property construction sector,” while infrastructure investment in the country is also expected to rise significantly this year, he added.

Chinese Premier Li Keqiang told a State Council meeting on Monday that the country should watch the economic impact from domestic and external factors that have exceeded expectations, and that policy measures need to be implemented in the first half to stabilize prices and economic fundamentals.

Benchmark iron ore futures on the Dalian Commodity Exchange, for September delivery, declined 2.5% to 809 yuan a tonne, extending losses to the third session.

Capital Economics said in a note on Friday that it expects infrastructure stimulus to “merely provide a floor under prices as the government appears willing to tolerate slower growth in 2022.”

The China Iron and Steel Association said on Monday the country’s first-quarter apparent steel consumption plunged 9.5% year-on-year, but sees demand recovering in the second half of the year.

(With files from Reuters and Bloomberg)