Iron Ore

Downside risk for iron ore mount: Chinese imports fall as policymakers double down on lockdowns

Mon 09 May 22, 3:29pm (AEST)
Iron Ore 8 Mining Port
Source: iStock

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Key Points

  • Iron ore miners post heavy losses on Monday as prices go backwards
  • Chinese iron ore imports fell -7.1% between January to April
  • China refuses to budge from its zero-covid policy, in favour of harsh lockdowns

Iron ore miners are getting smashed on Monday as China’s economic rout is poised to deepen.

Fortescue (ASX: FMG) has headlined the losses, down -6% ($19.59) and smack bang on its 200-day moving average.

More pain is being felt on the smaller end of town, with names like Fenix Resources (ASX: FEX), Grange Resources (ASX: GRR) and Hawsons Iron (ASX: HIO) down between -5-17%.

The losses are largely aligned with the deterioration in iron ore prices, down to US$131.9 a tonne.

2022-05-09 14 29 10-FEFK2022 2022-05-09 14-29-06.png ‎- Photos
Iron ore futures (Source: TradingView)

All things China

There's a lot of negative developments coming out of China as its economy takes a massive hit from prolonged lockdowns.

In chronological order:

  • Iron ore imports for China fell -7.1% to 354m tonnes for January to April

    • The average price was down -29.5% to 752 yuan a tonne (US$112)

  • Over the weekend, Chinese Premier Li Keqiang warned of a “complicated and grave” employment situation, according to Bloomberg

  • Last Friday, China reaffirmed its commitment to the controversial zero-covid strategy

    • Reiterated that any lax will “lead to massive numbers of infections, critical cases and deaths, seriously impacting economic and social development and people’s lives and health.”

    • Beijing is still at odds with its covid outbreak, mass testing the capital’s 25m residents with various restrictions in place

  • Last Thursday, China’s services PMI fell to 36.2 in April, the second-lowest reading since the survey began in November 2005

    • The index hit a record low of 26.5 in February 2020

    • A figure below 50 indicates contraction

China will release data relating to industrial production, retail sales and fixed asset investment next Monday, May 16.

Slight lockdown relief

There are early signs that Chinese lockdowns appear to be easing from recent highs - but still elevated.

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Stimulus might not be enough

Chinese policymakers intend to shore up stimulus to steady the economy. Though, excess infrastructure spending goes against the nation's tight grip on borrowing in its highly leveraged real estate sector.

The South China Morning Post reported that "While clearly warranted, we wonder whether infrastructure investment can really grow fast enough in the remainder of the year to reach the 5.5 per cent growth target anyway.”

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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