Iron ore recap: Eyes on US$150, stockpiles hit 8 month lows and Fortescue's chart

A recap of the state of iron ore markets and heavyweights BHP (ASX: BHP), Rio Tinto (ASX: RIO) and Fortescue (ASX: FMG).

Eyes on US$150

Iron ore was looking awfully shaky two weeks ago, threatening to break below US$120.

The reopening of Shanghai, a bounce back in China's manufacturing PMI (albeit still in contraction) and a sweep of economic stimulus from Beijing has brought above a V-shaped rebound in spot prices - now poised to have a crack at US$150.

Source: TradingEconomics

China iron ore futures hit 10-month high

Iron ore prices on China's Dalian Commodity Exchange hit 10-month highs this week amid shrinking stockpiles and a flurry of stimulus news.

Benchmark iron ore futures for September delivery has been trading around 925 yuan (US$140) a tonne.

"Fundamentals look relatively strong," Atilla Widnell, Managing Director at Navigate Commodities in Singapore told Reuters.

“If China can sustain this level of ‘openness’, we anticipate this will release pent-up and ravenous national steel demand."

Widnell also observed tailwinds including slower arrivals of imported iron ore in China and a week-on-week decline of 1.1m tonnes from Australian and Brazilian shipments.

September Iron Ore Futures (Source: Dalian Commodity Exchange)

Stockpiles at 8-month lows

Iron ore inventories in China have dipped to 132m tonnes, reaching an 8-month low, according to Steelhome data.

No lockdowns, more stimulus

On May 31, China announced 33 new stimulus measures to boost economic growth, aimed to support companies impacted by lockdowns, shore up investment and ensure the supply of basic resources.

Although, as reported by Reuters, some analysts still question whether such stimulus will be enough to lift China's economic growth to its official 5.5% target for 2022.

More is needed

Iron ore has bounced with conviction, but more positive data is needed to prove that China's economy is finally back on track.

China's official manufacturing Purchasing Managers' Index for May was 49.6, an improvement from April's reading of 47.4 but still below the 50-point mark which separates growth from contraction.

Unsurprisingly, global crude steel production fell -5.1% to 162.7m tonnes in April, with notable declines from Asia and Europe.

Source: Steelhome

It feels like investors are now somewhat walking in the dark as iron ore appears to have front-loaded the stimulus and reopening optimism.

A quick look at Fortescue's chart

Fundamentals aside, Fortescue is setting up a bullish flag alongside some recent higher lows.

Source: TradingView, Annotations by Market Index