Iron ore hits four-week high as China demand prospects back in focus

MANILA: Benchmark Dalian and Singapore iron ore futures hit four-week highs on Monday as China's forecast-beating quarterly GDP growth helped shift investor focus back to demand prospects for the raw material in the world's top steel producer.

China's economy expanded 6.5% year-on-year in the final quarter of 2020 and looks poised to expand further this year, lifting market sentiment dampened by the country's fresh restrictions to curb the spread of COVID-19 infections.

The most-active May contract for iron ore on China's Dalian Commodity Exchange rose as much as 2.5% to 1,084.50 yuan ($167.29) a tonne, its strongest since Dec. 22.

Iron ore on the Singapore Exchange gained 1.3% to $171.36 a tonne.

China's 2020 crude steel production rose to a record 1.05 billion tonnes as the economy's reopening after the coronavirus-induced lockdowns boosted demand, and the euphoria looks set to continue, said Paul Gray, a Wood Mackenzie vice president.

"Vaccines, global economic recovery and tighter supply-demand fundamentals all point to a lucrative 2021 for steel and iron ore producers," he said, predicting a modest decline in Chinese metal production later in the year.

While worries remain about fresh lockdowns in China, the economic impact will likely be muted, said Iris Pang, ING's chief economist for Greater China.

"Even if people do not go back to their hometowns during the Chinese New Year, the impact on consumption should be relatively small," she said, adding those who would stay at their work locations would continue to consume.

Rebar on the Shanghai Futures Exchange rose 0.3%, while hot-rolled coil slipped 0.2%. Stainless steel climbed 1.7%.

Dalian coking coal dropped 0.4%, while coke slumped 1.4%.

Spot iron ore in China settled at $173.50 a tonne on Friday, near a nine-year high hit in December, according to SteelHome consultancy data.