Iron ore futures in Singapore touched $130 a ton for the first time since March on an improving demand outlook for steel in China, which is considering a new wave of stimulus to shore up the struggling property sector.
The steelmaking ingredient has jumped by a third from this year’s low in late May. Iron ore surged past the $130 mark after Bloomberg reported Beijing plans to provide at least 1 trillion yuan ($137 billion) of low-cost financing to the nation’s urban village renovation and affordable housing programs.
The plan would mark a major step-up in authorities’ efforts to put a floor under the biggest property downturn in decades, which has weighed on economic growth and consumer confidence. It comes after last month’s move to issue an additional 1 trillion yuan of sovereign bonds this quarter, with the funds partially earmarked for construction.
Expectations for iron ore restocking before February’s Lunar New Year holiday period are also aiding the demand outlook. That’s offset nervousness over the property sector, which accounted for as much 40% of Chinese demand for the bulk commodity before the real estate downturn.
Beijing has been making efforts to restore confidence in the troubled industry, attempting to save a major developer after letting two others plunge into default. China’s economy, meanwhile, moved back into deflation in October, while the nation’s iron ore inventories are around low levels last seen in 2016.
Sentiment is strengthening due to a positive macroeconomic environment both domestically and abroad, said Steven Yu, a ferrous researcher at Mysteel. He pointed to the news of Beijing’s stimulus plans, as well strengthening expectations of interest rate cuts in the US.
Investors are also keeping an eye on possible interventions by Beijing to curb iron ore prices or reduce steel production. China Mineral Resources Group, the state-backed firm set up to consolidate the country’s iron ore purchases, said last week that prices had reached unreasonable levels.
China’s production of crude steel fell to its lowest rate this year in October, after some mills dialed back operations amid thin margins and demand uncertainty.
Iron ore was 2.1% higher at $130.90 a ton in Singapore at 1:06 p.m. local time. Futures in Dalian and steel prices in Shanghai also surged.