Iron Ore Hits Six-Month Highs Despite UBS Calling It “Least Discussed” With Investors

Singapore iron ore futures have perked up over the past week, extending gains into a sixth straight session and approaching a six-month high as signs of revived Chinese demand emerge into the tail end of summer. 

Prices have held steady, hovering around $100 a ton for more than a year, as the gloom from China’s vicious property market downturn and debt crisis, coupled with accelerating deglobalization and the absence of robust stimulus in the world’s second-largest economy, has given investors little incentive to pile into futures of the steelmaking ingredient. 

As Bloomberg noted, Singapore futures briefly surpassed $107 a ton to begin the week – the highest intraday level since February. Futures are on track for the longest winning streak since January. 

CITIC Securities analysts wrote in a note to clients that downstream demand rebounded after China’s military parade earlier this month, fueling peak-season restocking. Expectations of a 25bps interest rate cut by the Federal Reserve also buoyed sentiment, while temporary steel mill curbs in northern China during the parade further tightened supply. These are some of the key drivers, as explained by the analysts. 

“Downstream demand rebounded significantly after the military parade, reinforcing the need for peak-season inventory restocking and supporting prices for the sector,” CITIC Securities analysts said, adding that the market is getting a boost from hopes that the Fed will cut later this month. 

Still, iron ore has muted sentiment across major commodity desks.

UBS Catherine Gordon told clients, “I would flag that the team has seen strong demand for the UBS Gold Miners Basket {UBXXGOLD} amid the frenzy. Iron Ore remains the least discussed with investors on the sidelines.” 

In another note, Goldman analyst James McGeoch asked clients: “The big question is why has Iron Ore PX been so strong over the weaker summer period?”

Answering his own question, McGeoch said: “Your coming into the pre-golden week restock (Golden week October 1), the onshore feedback is positive, August imports at 105mt is impressive. The range $100-105 is still where the traders see it, consumer buying at $100, and producer hedging at $105. Of note the story Friday on the CMRG (China group) selling to calm prices down, they are not going away… ”

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