SHANGHAI, Feb 20 (SMM) – Dalian iron ore futures surged more than 4% on Thursday, as expectations of a swift, substantial recovery in the demand for the steel-making raw material increased following the benchmark lending rate cuts by China’s central bank.

The most active iron ore contract on the Dalian Commodity Exchange for May delivery climbed nearly 5% to its highest since January 22 at 673.5 yuan/mt in the final trading hour. It finished the trading day 4.22% higher at 667 yuan/mt.

The People's Bank of China on Thursday cut the one-year loan prime rate (LPR) 0.1% to 4.05% from the previous monthly fixing. The LPR is a lending reference rate set monthly by 18 banks at which they lend to customers with good credit.

Thursday's move, marking the first cut since October last year, aims to support small and mid-sized enterprises which are severely hit by the outbreak of the new coronavirus.

Meanwhile, the five-year LPR, which guides housing loans, was lowered by 0.05% to 4.75%. The last rate cut was also in November.

Iron ore futures on the DCE have risen for eight consecutive trading days, returning to the area seen before the Lunar New Year holiday, on expectations that demand will recover rapidly after factories and construction sites in China resume work when steelmakers are set to ramp up production. China has issued a slew of measures to offset the economic damage from the coronavirus epidemic.

Recent developments on the epidemic have calmed investors’ nerves, as China’s health commission said that the number of new cases from the coronavirus outside of the epicentre of Hubei, in mainland China, has fallen for 16 consecutive days as of February 19.

Concerns about tightening seaborne supplies also helped bolster iron ore prices. Anglo-Australian miner Rio Tinto on Monday lowered its outlook for the volume of full-year iron ore shipments from the Pilbara region after tropical cyclone Damien hit Australia's west coast.

Rio Tinto’s shipment forecast cut came after its rival Vale SA last week scaled down its first-quarter iron ore production outlook following heavy rain in Brazil that hampered its operations.

Iron ore’s bull run came despite top steelmaking hubs—Tangshan and Handan, beginning production curbs to counter the latest round of smog.

In the short term, iron ore prices are likely to see some correction as demand has yet to fully recover and steelmakers are still undertaking maintenance, but the anticipated demand recovery paints a bullish picture for iron ore prices in the medium term.

On Thursday, iron ore led the gains across the ferrous complex. Shanghai rebar rose 2.1%, hot-rolled coil increased 1.5%, while stainless steel gained just 0.1% as nickel dipped. On the DCE, coke jumped 1.5% and coking coal advanced 0.4%.