Iron ore price set to rise as Beijing caves in on stimulus to aid faltering economy

Iron ore futures have spiked after China announced a series of measures to boost growth, buoying the outlook for WA’s key mineral commodity.

Futures rallied more than 4 per cent in Singapore on Tuesday, then pared some of their initial gains, after China’s central bank governor Pan Gongsheng said that policymakers would help banks boost lending to consumers, cut the key short-term interest rate, and lower mortgage rates on existing housing loans.

Shares in Australia’s iron ore mining giants record big gains following the announcement. By the close of trade Rio Tinto’s stock was up 3.8 per cent, BHP rose 3.3 per cent and Fortescue jumped 1.7 per cent. Mineral Resources surged 6.5 per cent — also fuelled by a rise across the lithium sector.

Iron ore, a steelmaking staple, has been among the worst performing major commodities this year as China’s slowdown — especially the nation’s drawn-out property crisis — has hurt demand, with mills reducing steel output.

Chinese steelmaker Baowu last month warned of a “long and harsh winter” for the steel industry and was downbeat on the prospect of its government lending a helping hand.

An August survey from Chinese reporting agency Mysteel highlighted that only 1.3 per cent of the country’s steelmakers are profitable in current market conditions, an unprecedented number.

At the same time, major, low-cost miners in WA and Brazil have been boosting supplies, driving the seaborne market into a surplus.

This pushed the iron ore spot price below $US90 a tonne earlier this month, a floor not breached since 2022.

“The (price) rebound may continue for a while due to stronger confidence, but the actual impact on the supply-and-demand dynamic is still uncertain,” said Han Jing, an analyst at SDIC Essence Futures Co.

Iron ore futures gained as much as 4.1 per cent in Singapore, before trading 2 per cent higher at $US91.25/t just before 10am.

The commodity remains more than a third lower this year — currently trading at around $US90/t on the spot market. In China, yuan-priced steel futures climbed in Shanghai.

“Today’s policy is helpful in boosting market sentiment,” said Wei Ying, an analyst at China Industrial Futures.

“However, the domestic economy issue is very complicated, so monetary loosening might not be enough,” Wei added, citing the need to watch for additional fiscal policies.

Base metals were mixed after the stimulus announcement. Copper was trading 0.3 per cent higher on the London Metal Exchange at $US9,573 a ton, aluminium was flat and tin dipped.

ANZ China economist Raymond Yeung 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

“In our view, an aggressive fiscal policy is required to inject genuine economic demand.

“We question whether today’s package can lift China from the deflationary spiral.”