Iron ore futures opened low and closed on high on Tuesday, following market optimism on China’s demand despite rising supply from miners.
The most-traded iron ore for September delivery on China’s Dalian Commodity Exchange rebounded from yesterday losses and gained by 2.75% or RMB 22.50 day-on-day to RMB 841 a tonne on July 21.
Joining the rally, the steel rebar contract on the Shanghai Futures Exchange rose by 1.21% or RMB 45 to RMB 3,764 per tonne.
Focus on China’s stimulus
According to Morgan Stanley, the current rally of iron ore had made the market ‘more detached from its fundamentals’ as the market players were focused on Chinese fiscal stimulus packages.
As there was recent rally among China’s stock exchange as the Chinese regulators had lifted equity investment cap for insurers and encouraging mergers and acquisitions among brokerages and mutual fund houses.
Meanwhile, the supply side of the iron ore market was flooded with more shipments from major miners like Brazil’s Vale, which iron ore output grew by 5.5% on-year during Q2, and 13.4% higher on-year than Q1.
Similarly, BHP Group’s iron ore output also surged by record breaking 7% year-on-year for Q4 ended in June 2020, amid coronavirus pandemic.
Huge drop in Japan’s iron ore imports
In contrast to China’s huge appetite for iron ore, Japan’s steel demand had dwindled amid the coronavirus pandemic and resulted a slump in its iron ore imports.
So far, Japan imported 44.4 million mt of iron ore for the first six months of 2020, down 11% year-on-year, based on data from Refinitiv.
In June alone, the iron ore imports nosedived to 5.2 million mt, down 40.3% from 8.7 million mt recorded on June 2019.
According to shipbroker, Banchero Costa, the huge drop of Japanese imports may add more instability to dry bulk market, as Japan imported almost two-third of its iron ores from Australia.