Iron ore price continues surge, leaping to $US110/t as Chinese stimulus rolls out

The stunning resurgence of WA’s economic lifeblood commodity is showing no signs of slowing down, despite experts continuing to warn that the positive price reaction has been overblown.

The iron ore price spiked over the weekend after three of China’s biggest cities eased curbs on home-buying, bolstering the demand outlook in the world’s biggest consumer of the steel-making ingredient.

Shanghai, Guangzhou and Shenzhen loosened rules, following through on Beijing’s latest efforts to prop up the embattled property sector.

The spot price surged $US10 to $US110.10 a tonne by Monday morning, continuing a rapid rise from below $US90/t earlier this month. A sub-$US90/t price had previously not been seen since 2022.

The nation’s iron ore majors continued their ascent on Monday. In early trade Rio Tinto was up 2.5 per cent, BHP 2 per cent, Fortescue 4 per cent and Mineral Resources 4.7 per cent.

In the space of two weeks Rio and BHP have gained more than 15 per cent each, Fortescue more than 20 per cent and MinRes nearly 40 per cent as the latter capitalises on a rebound in the lithium market and a short selling squeeze.

Iron ore, which had been one of the year’s worst performing major commodities as China’s economy slowed, has been revived as policymakers in Asia’s largest economy moved more aggressively to shore up the economy.

Central to that effort have been initiatives to drag the real estate market out of a years-long slump.

Guangzhou became the first tier-one city to remove all restrictions on homebuyers. Shanghai, China’s financial hub, and Shenzhen, the southern city known for its tech industry, announced they were lowering minimum downpayment ratios for first and second homes to 15 per cent and 20 per cent, respectively. China’s central bank also announced on Sunday that it would allow refinancing of mortgages.

But economists and analysts have broadly warned that the stimulus impact on longer term steel demand, and consequently the iron ore price, has been overblown.

“While we see upside risk to our price forecast from potential additional stimulus announcements, we still expect iron ore prices to fall to US$85 a tonne,” Goldman Sachs commodities analyst Aurelia Waltham said.

ANZ China economist Raymond Yeung last week said the stimulus package “is far from being a bazooka” and said concerns still linger about the Middle Kingdom’s economic recovery.

“Without the presence of other ministries, we have concerns about the impact on the real economy because China seems to have fallen into a liquidity trap,” he said.

Global investment bank UBS echoed that sentiment.

“This has offered relief for equities, but . . . more is needed to appropriately stabilise property market activity and house prices, thereby supporting consumer confidence and ultimately consumption,” UBS told clients in a note.

But Steven Yu, a researcher at steel market analytics firm Mysteel, says there’s now expectations of ”more fiscal measures” and believes the measures already announced surpassed what Chinese steel makers were anticipating.

The slowdown in the property market has been a major challenge for China’s steelmakers given that it’s traditionally been a mainstay of demand.

Leading mills have been slashing production and have warned that industry conditions are worse than major traumas in 2008 and 2015.

On the supply side, iron ore production is likely to remain abundant. Miners in Brazil and Australia - home to the world’s four largest exporters - have been raising output.