MANILA: Iron ore futures climbed on Friday, with the Dalian benchmark vaulting to a more than six-month high and on track for a 43% annual gain, as top steel producer China’s abrupt unwinding of pandemic controls fanned hopes of a recovery in demand in 2023.
Spot prices of the steelmaking ingredient also rallied this week, scaling a five-month peak as traders brushed aside concerns about surging Covid-19 infections across China. But it was set to mark its weakest year-end level in three years.
The most-traded May iron ore on China’s Dalian Commodity Exchange rose as much as 2.2% to 858 yuan ($123.29) a tonne, its strongest since June 10. On the Singapore Exchange, iron ore’s benchmark January contract gained 0.7% to $115.95 a tonne, its loftiest since late July.
Spot 62%-grade iron ore jumped to $116 a tonne on Thursday, the highest since early August, SteelHome consultancy data showed.
After scaling this year’s peak at $163 in March driven by China’s easing of pandemic restrictions and economic stimulus measures, iron ore retreated in recent months and collapsed to $80 levels in November, dragged down by Beijing’s draconian “zero-COVID” policy and a property sector downturn.
“Iron ore is expected to remain strong in the near term (rising to $120/t) and could follow through (rally up to $150/t) in the bull case of a major China credit easing during 1Q’23 and an accelerated China re-opening plan materializing,” Citi analysts said.
Other Dalian steelmaking inputs were also firmer, with coking coal and coke up 0.5% and 1.5%, respectively, as of 0255 GMT. Steel benchmarks were mixed, though, with rebar on the Shanghai Futures Exchange up 1.5% and hot-rolled coil climbing 1.7%, while wire rod fell 1.2%. Stainless steel slipped 0.4%.
Worries about China’s worsening Covid situation may curb near-term iron ore and steel prices, analysts said. “Shanghai rebar markets will have to wait and see if pent-up construction activity and associated steel demand (after the holidays and winter season) can survive the tsunami of Covid caseloads currently sweeping the country,” said Navigate Commodities Managing Director Atilla Widnell.