A “drip-feed” of Chinese policy measures to support its
ailing economy has pushed iron ore spot prices to their highest levels since
April, catching the market off guard amid a weaker outlook for Australia’s largest
trading partner.
The spot price for the steel making ingredient
jumped to $US118.20 overnight Thursday, compared with $US103.45 a tonne just
over two weeks ago. Meanwhile in Singapore, iron ore future for the September
contract is trading at around $US116 after falling to near $US100 in
mid-August.
The moves follow an easing in China’s mortgage
rules to support the debt-laden property sector that accounts for about 40 per
cent of the country’s steel demand.
Earlier in the week, two of China’s biggest cities
eased mortgage curbs to allow home buyers to enjoy preferential
loans for first-home purchases regardless of their previous credit record.
ANZ’s senior commodity’s analyst Daniel Hynes said
the latest support measures were a “drip feed that’s had a slightly better
impact on the price” than forecasters could have anticipated.
He described the move as a short-term rally that was “sentiment
driven” by policy measures which were yet to “evolve into any sizable pick up
in demand for the moment”.
“I do suspect the rally is susceptible to a bit of a sell-off if
we don’t see any follow-through evidence that [China’s] economy is improving,”
Mr Hynes added.
Westpac’s head of commodity research Robert Rennie also reckoned
the spike in the iron ore price was a short-term reaction to the roll-out of
incremental measures, which were “more to prevent the downward spiral in
sentiment from continuing”.