Iron ore jumped 10% with stimulus packages in China released throughout the week and improved expectations about demand (Image: REUTERS/Stringer)
The future prices of iron ore rose for the fourth consecutive session this Friday (27) and is on track for a gain of more than 10% on a weekly basis, supported by new interest rate cuts in China and expectations of more fiscal and real estate stimulus.
The most traded January iron ore contract on China's Dalian Commodity Exchange (DCE) ended the day's trading up 4.38%, at 750 yuan ($106.94) a ton — the highest level since September 2nd.
The benchmark October iron ore contract on the Singapore Exchange rose 3.38% to US$101.85 a tonne, and gained 13.8% this week. Earlier, the contract reached its highest value since August 7, at US$103.10 per ton.
In yet another round of stimulus, the Central Bank of China (PBoC) announced a cut in the reserve requirement ratio — the amount of money that banks must keep as reserves. This was the second reduction this year aimed at supporting economic growth.
Furthermore, China's pledge to deploy “necessary fiscal spending” to achieve the 2024 economic growth target of approximately 5% has improved market expectations regarding further fiscal stimulus.
China also plans to issue 2 trillion yuan ($285.2 billion) of special sovereign bonds as part of the new fiscal stimulus.
These measures have improved sentiment towards commodities, including iron ore.
Meanwhile, the cities of Shanghai and Shenzhen plan to lift remaining major restrictions on home purchases to attract potential buyers, which could stimulate demand for steel and iron ore.
Stimulus in China
Earlier this week, the Central Bank of China (PBoCits acronym in English) launched the largest stimulus package since the pandemic to lift the economy out of its deflationary state and return to achieving the government's growth target.
Focusing on the real estate market, the BC reduced average interest rates for existing mortgages by 50 basis points and cut the minimum down payment requirement to 15% on all types of housing, among other measures.
The Chinese Central Bank also introduced two new tools to boost the capital market.
The first was a program swap with an initial size of 500 billion yuan, which allows funds, insurers and brokers to have easier access to financing to purchase shares.
The second measure offers up to 300 billion yuan in 'cheap' loans from the central bank to commercial banks to help them finance purchases and buybacks of shares from other entities.
The broader-than-expected package, which offers more financing and rate cuts, marks Beijing's latest attempt to restore confidence after a series of disappointing data raised concerns about a prolonged structural slowdown.
Furthermore, the PBoC reduced interest rates for a period of 14 days — starting on Monday (23) —, which was considered a small sign of announcing new monetary stimuli and foreshadowed the other measures.
The stimulus boosted sentiment in the commodity market, including iron ore, whose price gains completely erased the losses recorded in September.
*With information from Reuters