Iron Ore Leads Industrial-Metals Rally in Bet on Demand Revival

(Bloomberg) -- Iron ore futures surged, leading a rally in industrial metals as easing concerns over economic fallout from the delta variant and prospects for additional stimulus in China buoyed the outlook for demand.

Futures in Singapore rebounded as much as 11% on Tuesday as a potential boost to the U.S. vaccination drive lifted sentiment across financial markets. China’s success in stamping out its Covid-19 outbreak bolstered the outlook for commodities from copper to oil. In London, most spot base metals are trading at a premium to later-dated contracts, signaling tight supplies. 

Industrial commodities are rebounding this week after China’s count of daily Covid cases fell back to zero and central bankers vowed to step up support for the real economy. Coking coal in the Asian nation hit a record, while copper rose for a third straight gain and zinc gaiened the most since May. Iron ore’s revival came after it lost about a quarter of its value in the past month as China’s push to curb steel production hammered demand. 

“Iron ore just cannot be the only one lagging while everything else in steel space is massively bid,” Xiaoyu Zhu, a metals trader at StoneX Financial Inc., said by email. “After the price spike in coal products in the last two days, it’s hard for iron ore to stay quiet.”

Five out of the six main contracts traded on the London Metal Exchange are in backwardation, a structure where spot prices trade at a premium to futures that can signal tight supplies or robust demand. LME lead contracts last week were facing the steepest spot premiums in at least two decades. Meanwhile, the backwardation in the copper market has approached levels seen ahead of the all-time highs in May. 

Metal-market watchers are pointing to more volatility to come amid a complex policy backdrop in China, as well as an uneven global recovery. 

In China, “people are hoping for some further stimulus targeting the infrastructure sector, as real estate and manufacturing are looking bleak,” said Erik Hedborg, principal analyst at CRU Group. “In the rest of the world, we are seeing steel production stabilizing at levels below pre-pandemic levels.”

Iron ore in Singapore closed 9.1% higher at $148.10, and was up 2% in the overnight session. Futures in Dalian closed 8% higher. Rebar and hot-rolled coil climbed over 2.5% in Shanghai. LME copper rose 1.1% to settle at $9,376 a ton at 5:53 p.m. in London.   

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