Iron ore futures rallied on bullish market sentiment since the start of week on better downstream demand from China.
The most-traded iron ore for September delivery on China’s Dalian Commodity Exchange rose by 2.88% or RMB 25.50 day-on-day to RMB 910 per tonne on Thursday.
Following the rally, the Shanghai Futures Exchange also went up by 0.78% or RMB 30 to RMB 3,858 per tonne.
Good downstream demand in China
The surge in paper market was fueled by higher automobile and excavator sales in China, which signified good downstream demand.
China’s automobile sales volume was estimated at 2.08 million, up 14.9% year-on-year, while excavator sales increased by more than 40% on yearly basis, based on data from Sinosteel Futures.
These positive indicators reflected good domestic demand on car ownerships and construction machinery due to the various infrastructure projects undertaken by the country.
Due to robust Chinese steel demand, the daily crude steel output continued to rise in late July in view of better demand in August.
According to China Iron and Steel Association (CISA), the daily crude steel output rose by 1.6% or 34,000 tonnes per day for the last eleven day in July, as mills expect rainy season to end in August and ramped up production.
BAC lifts price forecast for iron ore
The Bank of America (BAC) had lifted its iron ore price forecast to an average of $95/mt CFR China for 2020, due to robust Chinese steel demand.
This was a revision from previous price forecast at $85/mt, due to the strong Chinese steel demand driven by infrastructure, real estate, and construction projects in China.
However, the bank predicted a slowdown in 2021, where Chinese steel output growth moderate to a 0.4% yearly growth, with a prediction of average iron ore price at $85/mt and later $75/mt in 2022.