Iron Ore

China vows to stabilise growth. What does this mean for iron ore prices?

Thu 09 Dec 21, 3:27pm (AEST)
news china

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Key Points

  • Stabilising economic growth is a top priority for China in 2022
  • Policies on both steel demand and supply are expected to ease
  • Domestic steel market may face oversupply next year if stimulus takes time to reach end-users

Chinese policymakers pledged more attention to stabilise economic growth amid fears that the country’s economy may slow further in coming months. 

The world’s second-largest economy has faced strong headwinds, including skyrocketing commodity prices, financial risks represented by the Evergrande crisis and an electricity shortage. 

Open the floodgates for stimulus

New measures have already begun to kick in with the People’s Bank of China (PBOC) lowering the reserve requirements most banks must hold by 50 basis points. 

Market participants and industry watchers told S&P Global Platts that these cuts are leading to signals of further monetary policy easing in 2022. They also expected policies surrounding steel demand and supply to be eased in a bid to stabilise economic growth next year. 

The Chinese government has also stressed the importance of stability in its property sector, an industry that accounts for more than 30% of the country’s total steel consumption.

Supply or oversupply? 

Market sources told S&P Global Platts that China’s domestic steel industry is unlikely to face any tougher steel output cuts or further restrictions in the near term. 

"Oversupply is likely to continue in the domestic steel market in 2022, especially in the first half as steel production is set to recover, but any policy easing, starting from December, will take some time to reach steel end-users, such as property," one mill source said.

Is this good news for Aussie miners?

Aussie miners can breathe a sigh of relief as China's steel industry is unlikely to face tough measures anytime soon.

Earlier this week, China's customs data for November iron ore imports reported a 14.6% increase on the month and 6.9% increase year-on-year to 104.96m tonnes.

The encouraging figures have helped iron ore prices stabilise around 6-week highs of US$110/t.

That said, China appears to be taking a cautious approach to stimulus, with a focus on stability as opposed to the rampant stimulus it delivered in the first half of 2021.

Nevertheless, Fortescue Metals (ASX: FMG) has popped 6.5% this week to a near 3-month high.

BHP Group (ASX: BHP) is also close to a 3-month high. While Rio Tinto (ASX: RIO) is lagging.

Written By

Kerry Sun

Finance Writer & Social Media

Kerry holds a Bachelor of Commerce from Monash University and was Vice President of the University Network for Investing and Trading (UNIT). He is an avid swing trader, and drawn to breakouts and technical set ups. Outside of writing and trading, Kerry is a huge UFC fan, loves poker and bouldering.

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