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Iron Ore Climbs as China Property Market Recover

March 24
6:42 AM 2016

Iron ore price continued to rally as demand from China's property market is increasing. The improve in property market and plan from policy makers' to loosen margin-lending controls in equity trading also helped improving the sentiment.

On Monday iron ore extended a gain toward $60 a metric tonne as China's property market showed further sign of recovery. Metal Bulletin Ltd reported iron ore with 62% content in Qingdao climb for a fourth day adding another 2.3% upsurge to a $58.82 a dry ton. Amidst the lingering oversupply, iron ore still managed to rally 19% in February, which also supported by weak dollar.

According to Metal Bulletin as quoted by Business Insider, "Ferrous futures in China surged in morning trading after the Tangshan Iron & Steel Association published detailed plans late last Friday for production cuts in Tangshan ahead of the International Horticultural Expo that begins in end April."

The surge in iron ore also corresponded with the raise in China's steel futures. Reuters reported that steel price jumped more than 3% to their highest since June in Shanghai futures. China is the biggest consumer and producer of steel in the world. An increase of steel demand in domestic market indicated a raise in construction activity, which showed a further recovery in China's property market.

Analyst at Macquarie Group in its latest result on China steel survey said the increase of steel price has also advanced profitability in China's steel mills. That will push them to produce more steel amid a relatively low inventory, indicating the current pace of demand may be outstripping that of production.

With the increase demand from China, iron ore has rebounded from consecutive losses in three-year and surprising analysts who forecast further decline. The policy from China's government to support the growth has also helped the price. Government has planned to loosen the margin-lending controls in equity trading to help brokerage in their margin-trading business.

Senior commodity strategist at Australia & New Zealand Banking Group Ltd. in Sydney Daniel Hynes told Bloomberg, "Positive sentiment in the Chinese steel market is resonating from the plans to loosen margin lending in the stock market. Further gains in house prices is also supporting steel and iron ore."

China's National Bureau of Statistics reported house prices in China increased in 47 cities since last month. Investment in real estate development has recovered from a two-year downward streak in January to February. While sales also increased to 3% in the first two month of 2016, compared to a 1% rise for the entire 2015.

Price of iron ore continued to rally as China's property market showed further sign of recovery. It also corresponded with the raise of steel future as demand for iron ore from China's steel mills is increasing.

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