The price of iron ore on China’s Dalian Commodity Exchange continued its upward trend, closing 2.51% higher at 919.5 yuan ($125.63) per metric ton, the highest level reached since March 17.
Recent reports indicate that China plans to establish a mechanism to address local debt risks and manage local government debt. This move, revealed during a crucial financial policy meeting held on October 30-31, is expected to inject liquidity into the downstream market, boost market sentiment, and support the demand for industrial metals, including iron ore.
In addition, Beijing aims to fulfill reasonable financing demands for all types of property enterprises while implementing policies that cater to housing demand. These measures are likely to provide further support for the iron ore market, which is still considered more receptive to policy backing compared to other commodities. Analysts at Citigroup predict that iron ore prices could rise towards $130 per ton.
Another contributing factor to the positive outlook for iron ore prices is the uncertainty surrounding a potential labor strike in Western Australia. With limited information available on the progress of this issue, concerns about a possible supply disruption have emerged, further bolstering iron ore prices.
Recent data from Marcura shows that iron ore exports from Australia have already declined by over 3 million tons in the seven days leading up to October 27, compared to the previous week. Additionally, the top four iron ore miners reported a 2% decline in production during the third quarter compared to the same period last year. Analysts at BloombergNEF expect production levels to contract even further in the final three months of the year due to higher operational costs faced by the mining companies.
Dino Otranto, CEO of Fortescue Metals Group Ltd., emphasized the sustained strong demand for iron ore from China, the largest consumer of the steel-making material. This ongoing demand adds to the positive sentiment in the market.
Industry observers are also closely monitoring potential industrial action by BHP Group Ltd.’s train drivers in the Pilbara region of Western Australia. Approximately 500 workers have voted in favor of a strike to negotiate better conditions, which could lead to short-term disruptions in iron ore shipments.
Atilla Widnell, Managing Director of Navigate Commodities, highlights the constricted supply-side fundamentals resulting from reduced daily shipments from Australia and Brazil, coupled with the prospect of industrial action in the Pilbara operations. Widnell notes the anticipation from China for further economic stimulus, likening it to the craving of caffeine addicts for their next quick fix.
(With files from Reuters and Bloomberg)