Iron ore under renewed pressure on China Covid woes, recession fears

MANILA: Iron ore futures in Asia fell on Wednesday, shedding gains from the previous session after Shanghai city announced new rounds of mass COVID-19 testing, stoking concerns over further lockdowns in China, the world’s biggest steel producer.

Growing prospects of a global recession also weighed on most commodities markets, adding to concerns over an already weak demand in top metals consumer and iron ore importer China.

Iron ore’s front-month August contract on the Singapore Exchange dropped by up to 4.2% to $107.75 a tonne, after advancing 3.5% on Tuesday.

On China’s Dalian Commodity Exchange, the steelmaking ingredient’s most-traded September contract slumped as much as 2.2% to 717 yuan ($106.92) a tonne.

Shanghai, China’s most populous city, has lifted a two-month-long lockdown, but the government continues to impose targeted curbs on movements whenever a COVID-19 case is found outside quarantined areas. All residents in nine of the Chinese financial hub’s 16 districts would be tested twice from Tuesday to Thursday, citing the need to trace infections linked to an outbreak at a karaoke lounge.

“As we have repeatedly said, tighter COVID measures could return to China. And there are more positive COVID tests once more in Shanghai,” economists at ING said in a note.

China’s dynamic zero-COVID policy had prompted widespread lockdowns in recent months, curtailing economic activity, but some mandates have recently been eased.

“But even if there are more lockdowns, we expect these to be a lot more localised than the ones in March to May, as the government is trying to balance controlling COVID and growing the economy,” ING economists said.

Construction steel rebar on the Shanghai Futures Exchange fell as much as 1.3%, hot-rolled coil slipped 0.9%, and stainless steel shed 1.4%. Dalian coking coal slumped up to 3.4% and coke dipped 2.4%.