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Iron Ore Strong Start

Iron ore is having a strong start to the year, with rising prices and robust imports by China, sparked by optimism the world’s largest buyer of the steel raw material is adding enough stimulus to boost demand. The optimism in the past week has consigned China’s soft steel production data for December to memory, with both sentiment and fundamentals supporting the iron ore market.
Iron ore contracts traded in Singapore SZZFc1 ended at $135.31 a metric ton on Jan. 26, posting a weekly increase after declining for the two previous weeks. The contract is also 1% higher than the low so far in 2024 of $133.99 a ton, and prices have been in a broad uptrend since August last year, when they hit a closing low of $103.21 on Aug. 3.The gains have mirrored China’s main domestic price benchmark, the futures contract on the Dalian Commodity Exchange DCIOcv1, which ended at 988 yuan ($137.68) a ton on Jan. 26.
This was up 6% from the closing low so far in 2024 of 932.5 yuan a ton on Jan. 18, and the Dalian contract has been in an uptrend since the 2023 low of 541.5 yuan on May 25.

The increase in prices last week came as China’s central bank on Jan. 24 announced a deep cut in the amount of cash banks are required to hold in reserves, a move aimed at boosting lending to fund property and infrastructure development.

The People’s Bank of China trimmed the reserve requirement by 50-basis points, the biggest cut in two years in the amount of cash banks must hold as reserves, effective from Feb. 5.

The bank also said it will release policies on improving commercial property loans, sparking optimism that the central bank will be able to put a floor under the struggling real estate sector.

While it remains to be seen whether these measures will actually translate into increased demand and construction activity in the world’s second-largest economy, the optimism generated is likely to flow into increased demand for iron ore.

Source: Reuters (Editing by Sam Holmes)