Traders are crediting surprising resiliency in China’s construction sector, and tightened environmental conditions for Chinese miners, for an 8% uptick in iron ore futures this week.
The most traded iron ore contract on the Dalian Commodity Exchange lifted to US$84.82 a tonne this week, its highest mark since early April, according to Reuters.
Demand for iron ore is being driven in part by government spending on infrastructure and growth in property investment.
“At the beginning of the year most people had a pessimistic view on the outlook for the property market but that has changed with the stronger data releases,” Xiben New Line analyst Qiu Yuecheng reportedly told the AFR.
As for environmental factors, Chinese miners have seen far more environmental inspection teams at their iron ore mines in recent months, according to reports.
“Environmental inspections have caused great impact on iron ore prices,” one iron ore trader was quoted by Reuters.
“Production in some mines, processing plants, and mills are being disrupted. The whole supply chain has been affected by the inspections.”
A further aspect of China’s environmental and safety focus is also influencing the market: Chinese officials are working to eliminate all low-end steel products, with 120 million tonnes of capacity already eliminated in the first half of 2017.
Goldman Sachs responded to the news by lifting its speculative 3-month iron ore price from US$55 a tonne to US$70 a tonne. The overnight spot price was US$73.70.