CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 87.41% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Scan to Download iOS&Android APP

Can iron ore prices get a boost from China real estate stimulus?

By Indrabati Lahiri

07:00, 13 September 2022

Share this article
In this article:
Aluminum
Aluminium Spot
2503.68 USD
1.2 +0.050%
Copper
Copper
3.8480 USD
0.026 +0.680%
IRM
Iron Mountain
54.50 USD
-0.21 -0.380%
TSI
Iron ORE Spot
790.58 USD
-2.2 -0.280%
IRNT
IronNet Inc.
0.3225 USD
-0.0329 -9.410%

Subscribe to Weekly Highlights

The major market events for the week ahead right in your inbox. Subscribe
An aerial view of an open pit iron ore mine with heavy construction equipment
Iron ore has received a considerable boost from the new Chinese stimulus measures – Photo: Getty

Iron ore recently hit an approximate 2-week high at about CNY 715 per tonne at the time of writing, however, just a few days back, the industrial metal was trading at about CNY 668 per tonne, an almost 2-month low. This has left investors wondering whether iron ore is finally receiving enough of a boost from the new Chinese stimulus measures.

China has recently announced a slew of new stimulus measures, designed to help prop up a flailing economy weighed down by waves upon waves of COVID-19 measures. These new add-ons are adding to the bulk of the 33 new measures revealed in May this year. They will also have a high focus on infrastructure, thus boosting industrial and construction metals such as iron ore, aluminium and copper.

Iron ore was trading around a 2-week high at the time of writing 

Will the new Chinese stimulus measures be enough to bolster iron ore?

Iron ore has suffered considerably in the last two years, with increasing restrictions on the construction and real estate sector, due to rising cases of COVID-19. Although this was a global phenomenon, it was especially true in China, which drives much of the demand for the industrial metal.

China imports above 1 billion metric tons of iron ore every year, making it the biggest consumer of iron ore globally. Hence any policy measures or changes in the Chinese economic climate has a profound impact on the metal.

The additional stimulus package is worth approximately $146 billion and is directed towards property, infrastructure and private business. This includes an extra $44 billion assistance to banks, in order to help finance infrastructure projects. This is very important, as although the government is encouraging banks to lend more, they have been quite reluctant to do so lately.

Furthermore, local governments are also being provided with approximately $73 billion in order to help ease financing costs and keep construction projects running as smoothly as possible.

Electricity companies are also being issued about $29 billion, in order to keep supplying consistent electricity. Additionally, centra Chinese city Zhengzhou has also announced that it will be restarting all halted construction projects until the start of October.

This has gone a long way in helping support iron ore prices, which investors believing that the metal may still have some way to go. However, energy rationing in China, due to the ongoing energy crisis is still a major concern, especially in the steel industry, which also drives considerable iron ore demand.

What is your sentiment on TSI?

790.58
Bullish
or
Bearish
Vote to see Traders sentiment!

US100

11,470.30 Price
-0.670% 1D Chg, %
Long position overnight fee -0.0164%
Short position overnight fee 0.0059%
Overnight fee time 22:00 (UTC)
Spread 1.8

XRP/USD

0.39 Price
-0.440% 1D Chg, %
Long position overnight fee -0.0500%
Short position overnight fee 0.0140%
Overnight fee time 22:00 (UTC)
Spread 0.00326

BTC/USD

16,873.40 Price
-0.930% 1D Chg, %
Long position overnight fee -0.0500%
Short position overnight fee 0.0140%
Overnight fee time 22:00 (UTC)
Spread 60.00

Oil - Crude

72.84 Price
-2.350% 1D Chg, %
Long position overnight fee -0.0157%
Short position overnight fee 0.0013%
Overnight fee time 22:00 (UTC)
Spread 0.03

Which are the main iron ore players impacted?

Kumba Iron ore (KIROY) has already benefited greatly from soaring iron ore prices, with the company’s stock rising almost 16% in the last week. However, since it is still trading almost 50% down from peak heights, it still has a lot of room for upside.

IronNet (IRNT) has also significantly gained from the boost in iron ore prices, with shares rising almost 29% since the start of September. However, the company is still about 66% down from the record highs seen in February 2022, at the start of the Russia-Ukraine war.

Iron Mountain (IRM) has also soared more than 10% in the last week, and almost 27% since mid-July. Currently shares are trading at an almost 5-month high, with investors hopeful that this trend may continue in the coming few months as well.

What is the outlook for iron ore for the rest of 2022?

According to Wood Mackenzie, in this research note, iron ore still has the potential to recover faster than expected, especially if steel infrastructure is prioritized in the new Chinese stimulus measures. The note highlights that “Beijing’s balancing act between human safety and economic stability remains the key short-term driver of iron ore.”

Fitch Solutions has also recently revised its iron ore forecasts in this report and is now expecting iron ore prices to inch up in the next one year to one and a half year. The ratings company has revised iron ore targets for 2022 from $90 to $120 per tonne and 2023 targets from $75 to $110 per tonne.

According to investment management company T. Rowe Price, “more fiscal stimulus to support growth in China could help to support the price of iron ore”. Thus, all eyes are expected to be on China, especially on its economic and inflation data for the next few months, in order to anticipate what other measures the government could come up with and their effects on iron ore.

 

Related reading

Rate this article

Share this article

The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
Capital Com is an execution-only service provider. The material provided on this website is for information purposes only and should not be understood as an investment advice. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents. We do not make any representations or warranty on the accuracy or completeness of the information that is provided on this page. If you rely on the information on this page then you do so entirely on your own risk.

Latest Commodities news

Still looking for a broker you can trust?

Join the 475.000+ traders worldwide that chose to trade with Capital.com

1. Create & verify your account 2. Make your first deposit 3. You’re all set. Start trading