Iron ore price rallies on positive signals from China

The most-traded January iron ore contract on China’s Dalian Commodity Exchange ended daytime trading 2.51% higher at 919.5 yuan ($125.63) a metric ton, the highest since March 17.

China will set up a mechanism to resolve local debt risks and manage local government debt, state media reported, citing a key twice-a-decade financial policy meeting held on Oct. 30-31.

Beijing will also help with reasonable financing demands for all types of property enterprises and pursue policies that aim to meet housing demand.

“Lowering local debt is, to some extent, injecting liquidity into the downstream market, buoying sentiment and supporting demand for industrial metals,” said Pei Hao, a Shanghai-based analyst at brokerage firm FIS.

Iron ore is still most exposed to further policy support versus other commodities, analysts at Citigroup said, seeing further upside potential towards $130 a ton.

“Providing further support is lingering concerns over a possible supply disruption caused by potential labor strike in the West Australia, especially when there is a lack of clarity on progress of the issue,” Pei added.

Iron ore exports from Australia fell by more than 3 million tons in the seven days to Oct. 27 from the week before, according to Marcura. Total production of the steelmaking material by the largest four miners declined 2% in the third quarter compared to a year earlier, and BloombergNEF analysts expect output to further contract in the year’s final three months as miners face higher operational costs.

Meanwhile, Fortescue Metals Group Ltd.’s chief executive officer, Dino Otranto, told Bloomberg on Tuesday the company saw “continued robust demand for iron ore” from China, the world’s largest consumer. 

Market watchers are also keeping a close eye on industrial action by BHP Group Ltd.’s train drivers in the Pilbara region of Western Australia. A union representing about 500 workers voted in favor of a strike for better conditions.

“Short-term supply disruptions in the form of reduced daily shipments out of Australia and Brazil, coupled with the prospect of industrial action at BHP’s Pilbara operations, have constricted supply-side fundamentals over the past week,” said Atilla Widnell, managing director of Navigate Commodities.

“At the same time, China bulls, like caffeine addicts, are waiting for their next quick fix of stimulus.”

(With files from Reuters and Bloomberg)