Iron ore miners have their tails up this morning as prices soared by around 8% overnight on word of economic easing in China.
What happens in China is critical to the price of Australia’s headline commodity, given it consumes around 80% of our product and accounts for almost 60% of the world’s steel production.
One of the big clouds gathering over the industry in recent months, as prices have more than halved from record highs seen in May of over US$230/t, has been demand from the housing market in China.
That accounts for a big chunk in downstream demand for steel, something which has weighed on iron ore prices as indebted developers like Evergrande have threatened to default amid tighter Chinese lending policies.
Iron ore buying soared however, as China’s central bank revealed it would cut the “reserve requirement ratio” for the second time in recent months.
Bloomberg said that would release US$188 billion of liquidity into the Chinese economy, providing capital for property and construction projects to arrest its slowing economic growth.
Iron ore prices charged after futures rose. The RRR cut was not the only positive news for steel and iron ore players.
Trade figures from china yesterday also revealed iron ore imports climbed to their highest level in 13 months in November, up 15% month on months and 7% year on year, ending a slide that began in August as steel production curbs began in earnest.
Fastmarkets MB said prices for 62% iron ore in northern China were up US$8.51/t to US$111.34/t on Tuesday.
Iron ore miners responded in kind, driving a near 2% rise in the ASX materials index.
Fortescue Metals Group (ASX:FMG) was up 2.5% to $17.85, BHP (ASX:BHP) rose 1.53% to break through the $40 barrier and Rio Tinto (ASX:RIO) inched closer to the $100 a share mark with a 1.85% gain.
Mid-tiers sitting on narrower margins were more sensitive to the price spike. Mount Gibson Iron (ASX:MGX) rose 8.22%, Grange Resources (ASX:GRR) was up 5.88% and Mineral Resources (ASX:MIN) charged 5.4% while Champion Iron (ASX:CIA) was up 4.94%.