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IRON ORE: Close To Early July Highs Amid China Housing Optimism

IRON ORE
Metals bulletBulletCommodities

The active SGX iron ore futures sits around $111/ton in latest dealings, remain up close to 9% for the session. Intra-session highs came just shy of $113/ton, which was close to highs from the early July period ($113.45/ton). A clean break higher could see the $120/ton region targeted, levels which were last seen in May. 

  • Iron ore futures are moving in lock step with China real estate stocks, see the chart below. The weekend news around Shanghai, Shenzhen, and Guangzhou easing homebuying restrictions is clearly aiding sentiment. Indeed, Guangzhou has become the first tier-1 city to remove all homebuyer eligibility checks. The market may be speculating other cities follow suit.
  • Not surprisingly, onshore steel futures are higher as well, albeit to a slightly reduced magnitude (+7% for hot rolled coil and rebar).
  • Broader sentiment hasn't been impacted by the generally softer PMI outcomes earlier (although the official manufacturing PMI did rise). These outcomes have largely been taken over by the events of the last week around stimulus measures/rate cuts etc and then the weekend announcement of easier housing restrictions.
  • Early focus may rest on the upcoming holiday spending/travel trends, with China onshore markets closed from tomorrow until next Tuesday for the National Day holiday period.
  • On Friday, we saw another slightly positive with lower inventory levels at China port, although we are still elevated from an historical standpoint. 

Fig 1: China Real Estate Equities & Iron Ore Futures 

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The active SGX iron ore futures sits around $111/ton in latest dealings, remain up close to 9% for the session. Intra-session highs came just shy of $113/ton, which was close to highs from the early July period ($113.45/ton). A clean break higher could see the $120/ton region targeted, levels which were last seen in May. 

  • Iron ore futures are moving in lock step with China real estate stocks, see the chart below. The weekend news around Shanghai, Shenzhen, and Guangzhou easing homebuying restrictions is clearly aiding sentiment. Indeed, Guangzhou has become the first tier-1 city to remove all homebuyer eligibility checks. The market may be speculating other cities follow suit.
  • Not surprisingly, onshore steel futures are higher as well, albeit to a slightly reduced magnitude (+7% for hot rolled coil and rebar).
  • Broader sentiment hasn't been impacted by the generally softer PMI outcomes earlier (although the official manufacturing PMI did rise). These outcomes have largely been taken over by the events of the last week around stimulus measures/rate cuts etc and then the weekend announcement of easier housing restrictions.
  • Early focus may rest on the upcoming holiday spending/travel trends, with China onshore markets closed from tomorrow until next Tuesday for the National Day holiday period.
  • On Friday, we saw another slightly positive with lower inventory levels at China port, although we are still elevated from an historical standpoint. 

Fig 1: China Real Estate Equities & Iron Ore Futures 

Keep reading...Show less