Chinese futures ended the week on slight gains as trade participants waited for further market direction from China’s Two Sessions.
The most-actively traded iron ore futures on the Dalian Commodity Exchange (DCE), for September delivery, gained slightly by 0.77% day-on-day to RMB 716.50 per tonne on Friday.
On the contrary, the steel rebar contract on the Shanghai Futures Exchange decreased by 1.13% day-on-day to RMB 3,508 per tonne.
No GDP target sets for Two Sessions
No annual GDP target was set by Beijing policymakers during the Two Sessions, the first in its history due to the economy uncertainty caused by the coronavirus pandemic.
However, the country did raise its military budget to RMB 1.27 trillion for 2020, up 6.6% year-on-year.
Moreover, the country’s government will issue a one trillion RMB bonds as new “special treasury bonds” for 2020, the first since 2007, to revitalize the coronavirus-hit economy.
There was not mentions of infrastructure packages yet, but some market sources expected China to make a ‘V-shape recovery’ as the country’s industrial activity had normalized much quicker than anticipated.
As such, investment bank like Jefferies LLC expected iron ore price to hit a price ceiling of $96/mt and unlikely to climb further than that, as the steel demand outside China were still very weak, especially in the US and European markets.
Supply tightness spurs better buying interest
Buying activities had increased for medium grades as some trade participants estimated that the floor for medium grade premiums had been reached and expected stronger upside, due to the existing supply tightness.
The simplification of port inspections for imported iron ore like Australian ores had also supported the buying activities as it facilitated iron ore trading.
As the move had been welcomed by mining majors like FMG and BHP, as traders have the liberty to opt out of the quality specification inspection check which usually take around 1-2 days.