BEIJING: Dalian iron ore extended gains on Monday as traders were relieved that steel mills in China’s major steelmaking province were yet to implement steel production cuts and on the latest rollout of monetary stimulus by the government.
The most-traded January iron ore contract on China’s Dalian Commodity Exchange (DCE) ended morning trading 0.58% higher at 774.5 yuan ($105.99) a metric ton, the highest since July 27.
China cut its one-year benchmark lending rate on Monday, as expected, but surprised markets by keeping the five-year rate, which influences the pricing of mortgages, unchanged.
In a Reuters poll of 35 market watchers, all participants predicted cuts to both rates. The central bank’s decision came after China said it would coordinate financial support to resolve local government debt problems, as part of efforts to shore up an increasingly shaky economic recovery and reassure worried investors.
Iron ore consumption remains resilient amid the high levels of hot metal production, although steelmakers exercised caution on purchasing volumes, analysts at Huatai Futures said in a note. “The market was buoyed by reports that Chinese steelmakers were not cutting production as much as was earlier feared,” analysts at ANZ said in a note.
Still, the benchmark September iron ore on the Singapore Exchange was down 0.2% at $106.65 a metric ton, as of 0428 GMT, pressured by fears of further rate hikes by the US Federal Reserve.
“A risk-off tone across markets weighed on sentiment, triggered by concerns of further monetary tightening amid strong growth and entrenched inflation,” according to ANZ analysts. Other steelmaking ingredients such as coking coal and coke on the DCE climbed 2.28% and 2.75%, respectively.
Steel benchmarks on the Shanghai Futures Exchange were broadly down. Rebar lost 1.29%, hot-rolled coil shed 0.66% and wire rod fell 1.43%. “Though steel fundamentals saw some improvement in the previous week, it’s still under pressure amid the overall weak macro economic environment together with the seasonally slow demand,” analysts at Sinosteel Futures said in a note. Stainless steel added 0.95%.
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