Iron ore prices jumped on Monday as major cities in China followed the federal government’s footsteps. After the jumbo stimulus package announced last week by the central bank, the authorities of three major cities have eased home-buying restrictions. The move has increased optimism over demand for the key steel-making ingredient even as concerns over the country’s industrial sector persist.
Major cities follow PBoC’s footsteps
A week ago, iron ore price had dropped to the lowest level since May 2023. However, in reaction to the stimulus package announced by the People’s Bank of China (PBoC), the industrial metal has since risen by close to 25%. In early Monday, it surged by over 10% to mid-July levels. This follows the decision by three major cities in the country to lossen rules on home purchases.
Last week, the Chinese government’s efforts to bolster the economic growth momentum came in the form of a jumbo stimulus package announced by the central bank. This included lowering interest rates on existing mortgages by 0.5% and lessening the minimum down payments on second homes from 25% to 15%.
Major cities in the country have now followed this trend by unveiling measures meant to bolster the homebuyer sentiment. On Sunday, a notice by the Guangzhou government indicated that all restrictions on home buying will be removed as from Monday. Prior to this announcement, migrant families needes to have social insurance or pay taxes for six months before being able to buy two homes. Besides, a single person within this category was limited to one apartment.
The Shenzhen government has also eased restrictions on home purchases; now allowing interested buyers to own one more apartment in specific districts. Previously, local families and single individuals could only own two and one home respectively. Besides, migrant families with at least two kids are now allowed to buy two homes, up from the previous limit of one.
Similarly, the Shanghai government has announced the lowering of the needed tax-paying period from three years to one. The city’s administration also reduced its down-payment ratio for starter homes to 15% and 25% for second homes as from Tuesday.
Beijing’s city government is also said to be considering easing its home-buying restrictions in certain districts. These positive measures are meant to boost property sales in the region. Subsequently, investors are optimistic that iron ore- the crucial ingredient in steel making – will have its demand increase significantly.
Prior to the multi-year real estate crisis, the sector contributed over a quarter of the country’s GDP. Subsequently, the SGX TSI iron ore index hit its all-time high in May 2021 at $233 per ton.
Surge in share prices
With the surge in iron ore prices, NMDC shares rose by over 4% on Monday to its highest level since 1st August. As at the time of writing, the share price of this company, which is India’s leading iron ore producer, was at 244.91 Rupees.
At the same time, BHP group’s shares traded in the green for the sixth consecutive session to levels last recorded in late May at 46.19 Australian dollars. Rio Tinto share price also rose to an intraday high of 130.98 AUD, a level last seen in late May. Rio Tinto, which is the world’s leading producer of iron ore has had its share price surge by over 22% since early September when it dropped to a one-year low.
Iron ore price analysis
The daily chart shows that the price of iron ore bottomed at $89.80 this month as concerns about the global economy continued.
It then bounced back to the current $111.15, its highest level since July 5. It has now moved above the important support level at $98.05, its lowest swing in April this year and May last year.
Iron ore has also jumped above the 50-day and 100-day Exponential Moving Averages (EMA), meaning that bulls are in control for now.
However, iron ore has also formed a head and shoulders chart pattern, a popular bearish sign. Therefore, there is a likelihood that this rebound will be short-lived, meaning that it may resume the downward trend. If this happens, the next point to watch will be at $90, its lowest point this month.
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