Economic stimulus, supply concerns bolster iron ore prices

SHANGHAI, Jun 11 (SMM) – Dalian iron ore hit its daily upper limit on Tuesday June 11, as China’s latest stimulus measure improved the outlook for demand and as miner Rio Tinto’s supply concerns fuelled expectations of tighter supplies.

The most active iron ore contract on the Dalian Commodity Exchange extended its gains today, gaining 5.99% on the day to close at 760.5 yuan/mt. Iron ore-related stocks and other ferrous futures also jumped.

China ramped up the issuance of special local government bonds to support economic growth and to ensure ample liquidity in the market, according to a notice issued on Monday by the central government.

Local governments and financial institutions are encouraged to use special bonds and other market-based financing methods to as project capital for certain infrastructure investments. This boosted market sentiment about demand for steel products.

Iron ore prices also received a boost from recent market talk that Rio Tinto will delay the delivery for some contracts for July and August after a cyclone affected the quality of its Pilbara lumps. The Anglo-Australian mining giant is unlikely able to deliver for supply agreements with some steelmakers in the next two months, and will scale back volumes for spot trades.

The news further reinforced the anticipation that iron ore supplies will tighten. Chinese Customs data on Monday showed that China’s imports of iron ores and concentrates in January-May declined 5.2% from the same period last year, amid record-high production across domestic steel mills.

Robust fundamentals are expected to continue to support iron ore prices. Iron ore stocks across 35 major Chinese ports, tracked by SMM, stood at 112.44 million mt as of Friday June 7, down 2.41 million mt from a week ago and 34.08 million mt from a year ago. Daily deliveries leaving those ports, meanwhile, expanded 66,000 mt from the prior week to 2.71 million mt last week.

The average operating rate across Chinese steelmakers who use iron ore as feedstock is expected to continue to climb in June, up 0.27 percentage point from May to 89.85%, according to an SMM survey.