Iron ore surges as China’s steel output approaches ‘inflection point’

Speculation that China’s steel mills are preparing for an easing of production cuts as soon as next month sent iron ore prices surging as traders positioned for an approaching inflection point in the country’s steel output.

The price of iron ore traded in the spot market jumped 6.8 per cent to $US103.27 a tonne, according to Fastmarkets MB, more than recouping the losses from Friday’s omicron-induced sell-off. Futures in Singapore were up nearly 10 per cent.

The bulk commodity’s swift rebound followed a report by Chinese research group MySteel which indicated that China’s steel mills are restocking ahead of a restart of idled plants in December, which is expected to trigger a rise in pig iron production.

“This could mark the inflection point after months of pressure on output,” said senior commodity strategist at ANZ, Daniel Hynes.

Widespread steel production curbs have sent iron ore prices spiralling from record highs as Chinese authorities cut emissions ahead of next year’s Winter Olympics, and demand for the commodity plummeted amid a slowdown in China’s property sector.

But MySteel said it expects pig iron production, the product of smelted iron ore, to rise by 37,000 tonnes per day by the end of December as 16 idled and two overhauled blast furnaces are restarted.

Commodities broker Marex Spectron said rumours about numerous steel mills in Tangshan preparing to ease production cuts explained the iron ore rally overnight.

Hot rolled coil and steel rebar prices have steadily risen since the middle of November, pushing steel margins and prices higher.

“Steel margins lifting is a positive sign from the demand side which has coincided with positive news from the steel output side,” said Vivek Dhar, director of mining and energy commodities research at the Commonwealth Bank.

“Our projection for iron ore prices is reliant on steel demand, and if that is emerging from the bottom, we could be in a positive space come next year, particularly after Chinese New Year and the Olympics.”

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