Australia’s miners boosted as Chinese stimulus hopes send iron ore surging


Speculation over increased stimulus measures to support the economy ensured big gains in Chinese iron ore futures on Monday.

According to data from the Dalian Futures Exchange, iron ore futures for May delivery spiked 5.6 per cent to ¥653 ($136) per tonne. On several occasions futures hit “limit up” 6 per cent, meaning the only factor preventing further gains was that contract specifications from the exchange operator prohibited them.

The strength in futures spilled over into physical markets with the spot price for benchmark 62 per cent iron ore fines surging 5.5 per cent to $US93.93 a tonne, according to Fastmarkets MB, leaving it at the highest level since October 8. The percentage gain on Monday was the largest since September 2.

Iron ore fines with 58 and 65 per cent iron content also jumped more than 4 per cent to start the week.

Boosted by the prospect of increased infrastructure spending, Chinese steel futures also jumped to multi-month, helping to underpin steel mill profit margins despite increased input costs.

“Mills have seen a big improvement in margins that are now approaching peak-construction season levels,” analysts at Macquarie said in a note. “The main driver is a faster than expected inventory drawdown, both in traders’ warehouses and steel mills.”

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The combination of improved profit margins and low inventory levels incentivises steel mills to up production levels, helping to underpin demand for raw materials, including iron ore.

Given the prospect of increased demand for raw materials, Australia’s listed iron ore miners have climbed in early trade on Tuesday.

Fortescue Metals has jumped to another record high, sitting up 0.6 per cent at $10.31 before midday, extending the rally seen so far this year to 168 per cent. BHP is also up 0.6 per cent at $38.29 while rival diversified miner Rio Tinto has risen 0.7 per cent to $98.06.



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