China's latest economic policies have significantly impacted the commodity markets. Following the relaxation of housing purchase restrictions in three major cities, Singapore iron ore prices surged nearly 11%, indicating positive demand prospects in the construction sector of the world’s largest steel raw material consumer.
Shanghai, Guangzhou, and Shenzhen have eased housing purchase regulations to support the struggling real estate sector. Upon this announcement, Singapore iron ore futures hit their highest level since July. Other commodities, particularly metals, also rebounded due to China's recent stimulus measures, with copper and zinc futures in London rising sharply on Monday.
Iron ore, one of the worst-performing commodities this year due to China's sluggish real estate market, has shown signs of recovery as the Chinese government takes more aggressive steps to support economic growth and financial markets. The core of these measures aims to lift the real estate market from years of low growth, which has dampened global commodity activities and investor confidence.
Mysteel analyst Steven Yu noted that China's stimulus measures are stronger than expected and anticipate more fiscal policies. The metal market, especially rebar, is seeing a reduction in inventory during its peak season. Guangzhou became the first tier-1 city to remove all restrictions on home buyers. Shanghai and Shenzhen announced reductions in the minimum down payment ratios for first and second homes to 15% and 20%, respectively. The People’s Bank of China also allowed mortgage refinancing.
Last week's introduction of massive liquidity for Chinese stock markets and a series of stimulus policies pushed iron ore prices up by over 11%, with significant rebounds in London Metal Exchange (LME) copper, aluminum, and zinc futures, driven by demand recovery expectations from China. LME copper futures even briefly exceeded $10,000.
The real estate market slowdown poses a serious challenge for China’s steel manufacturers as the sector is a major steel demand driver. Major steel mills have been cutting production, warning that industry conditions could be worse than the crises of 2008 and 2015.
On the supply side, iron ore production is likely to remain sufficient. Miners in Brazil and Australia, two of the world's largest iron ore exporters, have been increasing output steadily.
