Iron Ore Soars As China Pledges Crackdown On Industrial Overcapacity

Iron ore futures in Singapore surged toward $100 a ton — the highest since May — fueled by renewed pledges from the Chinese government to curb overcapacity in key industrial sectors. Beijing’s comments have boosted sentiment across ferrous markets. 

Singapore futures jumped as much as 3.6% during the session, marking the largest daily gain since September. Iron ore futures have traded in a tight range between $90 and $110 a ton for more than 18 months. Futures on the Dalian Exchange — which are more influenced by the Chinese market — closed at their highest level since April.

“Iron ore has gained more than 5% in two weeks, having recovered a third of its early year tariff related loss in just the last 10 sessions. Lead is up almost 4% in the last three weeks,” UBS analyst Simon Penn wrote in a note. 

“Many industries are currently caught in a wave of anti-overcapacity, leading to rising prices,” after top officials pledged to tackle the problem, said Steven Yu, a researcher at Mysteel, who Bloomberg quoted. He was referring to iron ore’s month-long slide of almost 10% from mid-May. He noted  that “ferrous prices were kept low during the previous decline, making the rebound particularly strong.”

Here’s more from Bloomberg:

The rebound has been spurred by vows from the Chinese government to crack down on excessive competition and supply in core industries including steel. President Xi Jinping visited a valve manufacturer in industrial heartland Shanxi province this week, where he stressed that the nation’s traditional industries remained vital and shouldn’t be abandoned.

. . . 

The renewed demand has also been seen in futures of Dalian coking coal — a key ingredient in the steel-making process — which surged more than 4.5% on Thursday and topped 900 yuan ($125.40) a ton, the highest since May, before paring some gains.

Meanwhile, data from Mysteel showed rebar steel inventories are still declining, despite stockpiles usually beginning to accumulate around this time of year. Hot-rolled steel has only seen a slight buildup, which indicates better-than-expected demand.

Separately, rumors of policy support sent Chinese property equities higher in the overnight hours. The Bloomberg Intelligence index of the nation’s real estate stocks jumped 11%, while Goldman’s China-H Real Estate basket gained 7.4%. Individual stocks, Logan Group Co. skyrocketed 85% in Hong Kong, and Sino-Ocean Group Holding Ltd soared 37%. 

It appears Beijing is finally stepping up with more decisive policy measures to stabilize the economy. This may signal a move by the government to suppress mounting economic dissent.