CRU: Iron ore rebounds after China announces stimulus

• Policy rate cut: Reduction in the seven-day reverse repo rate by 20 bps to 1.5%.
• Reserve Requirement Ratio (RRR) cut: Reduction in the reserve requirement ratio (RRR) for banks by 50 bps.
• Mortgage refinancing: Encouraging banks to cut the average mortgage rates by 50 bps to existing borrowers.
• Minimum downpayment: Reduction in the minimum downpayment for second-home purchases from 25% to 15%.
• Relending facility enhancement: Increase the supporting ratio of relending facility for unsold housing acquisition from 60% to 100%.
• Equity market support: Creation of new liquidity facilities for companies and institutional investors.

While some sort of stimulus was expected, we do not expect these measures to fully address the underlying issues facing the Chinese economy, such as weak consumer demand that has spurred the longest deflationary streak since 1999. More comprehensive efforts may be needed to solidify growth in the following quarters.

In the steel market, Chinese end-use demand weakened, indicating that the seasonal demand recovery is fragile. Nonetheless, steelmakers ramped up output and the surveyed BF capacity utilization rate has now risen above 84%. Together with pre-holiday restocking, iron ore spot buying picked up somewhat, and port inventories declined slightly. Having said that, we heard iron ore inventories have exceeded storage capacity at some ports.

Iron ore supply fell marginally in the past week. Port Hedland shipments edged lower by 400,000 metric tons (mt) week over week (w/w) and Indian iron ore exports remain weak. Samarco has restarted its P3P pellet plant ahead of its previous schedule of January 2025 and the company is on track to increase pellet production rapidly at the end of this year. In South Africa, September and October are the normal maintenance periods for railways, which will result in slightly lower iron ore shipments.

We expect the iron ore price to remain rangebound w/w. Besides the bullishness from stimulus announcement, buying activity will pick up as some iron ore traders look to close their short position; and there will be continued pre-holiday restocking before Oct. 1. However, there is very limited upside from the current price level with unsupportive demand/supply fundamentals.

NOTE: There are two price assessments for iron ore and coal displayed on this page, both sets of prices are published weekly each Tuesday. The assessments in the column on the right represent the average of market prices over the past week and are available in online tables, workbooks and Data Lab. The assessments in the dashboard below include only price information for Tuesday up to market close in Asia and are only available in this dashboard.

NOTE: There are two price assessments for iron ore and coal displayed on this page, both sets of prices are published weekly each Tuesday. The assessments in the column on the right represent the average of market prices over the past week and are available in online tables, workbooks and Data Lab. The assessments in the dashboard below include only price information for Tuesday up to market close in Asia and are only available in this dashboard.

This article was first published by CRU. To learn more about CRU’s services, visit www.crugroup.com.