China's property pivot drives sharp re-rate for iron ore majors BHP, Rio Tinto and Fortescue

Iron ore stocks are surging after China issued a rescue package to support its debt-ridden real estate sector.

Heavyweights BHP (ASX: BHP), Rio Tinto (ASX: RIO) and Fortescue (ASX: FMG) are all up at least 5% in early trade on Monday.

"Unlike previous piecemeal steps, the latest notice includes 16 measures that range from addressing the liquidity crisis faced by developers to loosening down-payment requirements for homebuyers," according to Bloomberg.

The measures include expanding key financial support programs to bolster liquidity for real estate developers, cutting interest rates for homebuyers and urging banks to push back repayment dates.

Its worth noting that China's infrastructure and residential property construction sectors typically account for 50-60% of domestic steel consumption.

Policy pivot sparks a re-rate

Last week, Macquarie analysts said that the state of iron ore had 'lots of powder but no spark'.

"... no clear policy adjustment has been announced and although the trend should be a move towards gradual re-opening, we remain cautious on China’s ability to ease its Covid policies," according to Macquarie.

Now, a policy adjustment has come into fruition and that's prompting a sharp re-rate for iron ore stocks.

Since 31 October, Fortescue has rallied 31%, BHP gained 22% and Rio Tinto up 18%.

Talk the talk, now walk the walk

Year-to-date, we've seen plenty of real estate stimulus and support headlines from China. But with all that talk, iron ore prices still managed to spiral from around US$120 a tonne at the beginning of the year to a brief low of US$75 on Monday, 31 October.

Chinese steel margins remained negative in October, which signals that "integrated mills continued to cut production due to weak margins," according to Macquarie.

Source: Macquarie Research

Property sales by floor area in 100 major cities fell approximately -20% year-on-year in October, according to a survey by China Index Academy.

China's 16-point plan makes for a great announcement to lift sentiment towards iron ore and miner valuations. However, more recent data shows that the battlefield remains grim, with negative steel margins and still-declining property sales.

Will this sweeping rescue of policies be the one to mark a true turnaround for Chinese steel demand? Or will it join the long list of short-lived headlines? At least for now, iron ore miners are enjoying a powerful rally.

Its worth noting that the diversified BHP and Rio Tinto have returned to positive year-to-date territory. While Fortescue is almost at breakeven, digging itself out of a -25% hole.

BHP, Rio Tinto and Fortescue year-to-date % performance (Source: TradingView)