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Iron ore extends rally on China demand optimism

Iron ore futures rose for a third straight session on Thursday, with the Singapore benchmark scaling a fresh six-month peak, underpinned by continued optimism about demand prospects in top steel producer China.

Prospects of stronger demand in China, which has dismantled COVID-19 restrictions and rolled out supportive policies particularly for its ailing property sector, have supported a rally in the ferrous complex since early November.

Iron ore’s most-traded May contract on China’s Dalian Commodity Exchange DCIOcv1 ended daytime trade 1.4% higher at 855.50 yuan ($126.57) a tonne.

On the Singapore Exchange, the steelmaking ingredient’s benchmark February contract climbed by up to 1% to hit its highest since June at $123.25 a tonne.

“Considering that the government’s full support for real estate and the post-epidemic economic recovery will stimulate consumption of iron ore, it is still recommended to call back more iron ore,” Huatai Futures analysts said in a note.

With global recessionary risks increasing, China has pledged measures that will help boost domestic demand and ensure steady and orderly financing to the property sector.

Chinese steel benchmarks were, however, subdued amid caution ahead of Lunar New Year holidays later this month and winter slowdown in construction activity that are expected to curb near-term demand.

Rebar on the Shanghai Futures Exchange steadied, while hot-rolled coil gained 0.2% and wire rod dipped 0.2%. Stainless steel rose 0.6%.

Dalian coking coal shed 0.2%, while coke climbed 1.7%.

“In the near term, (China’s) reopening will release some pent-up demand, leading to a strong rebound in H1,” ANZ economists said in a note.

However, they believed the easing measures “will not be able to address structural impediments faced by the economy.”

China’s growth momentum will thus likely falter in the second half as pent-up demand runs its course, while a global recession may hurt exports, the analysts said.

Source: Reuters

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