Quick Look:
- Iron ore futures hit a two-week high, driven by positive Chinese economic data and expected stimulus measures.
- The September iron ore contracts rose significantly on the Dalian Commodity Exchange (1.97%) and Singapore Exchange (0.76%).
- There was robust growth in China’s services sector in July, with employment at an 11-month high.
- Measures to boost service consumption, including product quality enhancements and financial support.
Iron ore futures experienced a notable surge on Monday, reaching a two-week high. This bullish movement was driven by favourable Chinese economic data and continued expectations of stimulus measures from the world’s largest consumer of iron ore. Investors and market participants enthusiastically welcomed the news, marking a significant positive shift in the iron ore market.
A Day of Gains in Dalian and Singapore
The most-traded September iron ore contract on China’s Dalian Commodity Exchange (DCE) saw a remarkable rise, ending the daytime trade 1.97% higher at 776.5 yuan ($108.69) per metric ton. It reached an intraday high of 788.5 yuan during the session, marking its most substantial level since July 22. Similarly, the benchmark September iron ore contract on the Singapore Exchange recorded a 0.76% increase, hitting $104.6 per ton, which was also its highest point since late July. This upward trend reflects growing confidence among traders, bolstered by promising economic indicators from China.
China’s Services Sector Shows Resilience
A key driver behind this positive sentiment was the robust performance of China’s services sector. According to a private-sector survey released on Monday, growth in services activity accelerated in July, extending its expansion streak to 19 consecutive months. The Caixin/S&P’s composite PMI index, which monitors both the services and manufacturing sectors, showed a slight easing from June but remained in expansionary territory. Notably, employment in the industry rose fastest in 11 months, underscoring the resilience and vitality of China’s services industry.
State Council’s Proactive Measures
A communique issued by China’s State Council on Saturday further bolstered market confidence, outlining measures to promote the “high-quality development of service consumption.” This document highlighted various initiatives to stimulate domestic consumption, including enhancing the quality of products and services, providing financial support through tax deductions, and extending credit support. These measures are crucial to invigorate domestic demand, significantly influencing China’s economic performance this year.
Analysts’ Optimism and Market Reactions
Market analysts from ING noted that while these supportive policies are a positive sign, there is still hope for more substantial demand-side measures such as consumption vouchers. Despite this, the current stimulus efforts have already begun to lift market confidence. Hexun Futures, a financial information site specializing in futures, predicted a rebound in the steel market this week, driven by increased stimulus efforts and an expected recovery in demand for building materials.
Strength Across the Steel Sector
The positive outlook extended to the steel market, with benchmarks on the Shanghai Futures Exchange showing strength. Wire rod prices climbed by approximately 1.5%. Hot-rolled coil advanced by 0.74%, while rebar increased by around 0.4%. Additionally, stainless steel saw a modest gain of about 0.1%. Other steelmaking ingredients on the DCE also recorded gains. Coking coal and coke increased by 0.25% and 0.35%, respectively. This broad-based increase across steel and related commodities indicates general optimism in the market. It reflects a belief in the sector’s ongoing recovery.
Looking Ahead: Cautious Optimism Prevails
While the recent gains in iron ore futures and steel markets are encouraging, market participants remain cautiously optimistic. The continued focus on China’s economic policies and their impact on consumption will be crucial in sustaining this positive momentum. Investors are closely watching for further announcements of larger-scale demand-side policies, which could boost the market. For now, the improved economic outlook and proactive measures from the Chinese government have set a positive tone, driving confidence and activity in the iron ore and steel markets.
