Beijing’s moves to stabilise China’s ailing properly sector could trigger higher demand for steel and tighten the already squeezed iron ore market.
BHP’s chief commercial officer Vandita Pant is optimistic China’s housing market policies could buoy already strong demand for iron ore, generating “strong momentum” for the steel-making commodity into next year.
The price of iron ore delivered into the northern Chinese port of Qingdao has lifted 20 per cent since late May to $US122.76 on Monday. Iron ore, the crucial ingredient for steelmaking, has been BHP’s biggest earner for more than a decade and delivered almost 64 per cent of the company’s underlying earnings in the year to June.“Iron ore demand is very strong in China, given that currently Chinese steel production is at a record high – highest ever production run rate of 1.
UBS and Citi analysts expect iron ore prices will need to be higher for longer because the miners will need to spend upwards of 30 per cent, according to UBS, on new mines to maintain current export rates, let alone grow export volumes.While China’s housing market has continued to post weak “new-build” data, the heat in the rest of the economy indicates steel demand could propel momentum higher in a “very strong way”, Ms Pant said.
“Overall, the construction sector is now around 25 per cent of steel demand – of which housing demand is around 14 per cent of the steel – which is not really bad,” she said, referring to healthy demand amid the housing market turmoil.UBS analysts, led by Lachlan Shaw, agreed with the assessment that iron ore prices would be buoyed by China’s infrastructure, manufacturing and non-residential property sectors’ appetite for steel.
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