Iron Ore

Massive intraday reversal for Fortescue: Easing inflation in China opens more room for stimulus

Fri 10 Jun 22, 4:07pm (AEST)
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Key Points

  • Fortescue rallies almost 5% off session lows after a knee jerk lockdown scare
  • Iron ore prices remain relatively unchanged for the week
  • Cooler-than-expected inflation numbers in China could see more stimulus in the coming months

A Shanghai lockdown scare triggered a broad-based decline for ASX-listed iron ore miners on Friday morning, with a steep -5% decline for Fortescue (ASX: FMG).

By market close, Fortescue shares rallied 4.6% off session lows, closing just -0.8% lower. Here are the potential catalysts that triggered such a volatile swing for the iron ore major.

Shanghai lockdown prompts knee jerk reaction

Shanghai has imposed a mini-lockdown in the south west district of Minhang, home to roughly 2.65m residents. The one day lockdown will commence on Saturday morning for mass covid testing, according to Bloomberg. 

The rest of the city has been subject to “escalating curbs” as officials are on the hunt for positive cases and tracking down close contacts.

This has once again dampened the prospects of a full-scale rebound in economic activity for Shanghai, which has remained in a harsh lockdown since late March. 

Chinese exports recover as iron ore imports fall

On Thursday, Chinese exports rose 16.9% year-on-year in May, more than double economist expectations of a 6.5% increase.

The rise was largely attributed to easing restrictions in Shanghai, which enabled industrial and shipping activity to return to normal.

Discouragingly for local miners, the volume of iron ore shipments fell -5.1% to 447m tonnes in May, compared to last year.

Easing inflation opens door for more stimulus

Contrary to the rest of the world, China’s consumer price index rose 2.1% in May, unchanged from a 2.1% rise in April.

The producer price index, which measures the prices received by domestic manufacturers, rose 6.4% in May, easing from an 8% increase in April. 

“CPI inflation remained stable. The rising commodity prices were offset by weak service prices, such as travel and entertainments,” Zhang Zhiwei, chief economist at Pinpoint Asset Management, told the South China Morning Post. 

“As PPI inflation is already on a downward trend, inflation is unlikely to be a constraint for further policy easing. I expect the government will roll out more stimulus in the next few months, including interest rate cut.”

Beijing has already announced a slew of stimulus measures to keep GDP growth aspirations alive. A total 33 measures were announced on May 31, with targeted investment into China's all-important infrastructure and housing construction sectors - which typically account for 50-60% of domestic steel consumption.

2022-06-10 15 53 27-Fortescue Metals Group Ltd (ASX FMG) Share Price - Market Index
Fortescue share price chart

 

Written By

Kerry Sun

Finance Writer & Social Media

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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