Iron ore gains as trade truce boosts outlook, though demand worries persist

Iron ore futures posted gains on Thursday, supported by a positive near-term demand outlook following a major easing in trade tensions between the United States and China. However, lingering concerns over long-term demand limited further gains.

In a significant move toward de-escalation, the U.S. and China agreed to slash tariffs on each other’s goods. Effective May 14, the U.S. reduced tariffs on Chinese imports from 145pct to 30pct, while China cut duties on U.S. goods from 125pct to 10pct. These reductions will remain in effect for 90 days, providing a window for both sides to negotiate a more comprehensive trade agreement.

Adding to the upbeat sentiment, inventories of finished steel products at major Chinese warehouses declined last week, signaling continued demand. This trend is likely to discourage near-term production cuts at steel mills. Supporting this view, data from the China Iron and Steel Association (CISA) showed that the average daily crude steel output at its member mills rose by 0.2pct in early May to 2.205 mln tons compared to late April.

Despite the short-term optimism, the long-term outlook for iron ore remains uncertain. Potential steel production curbs in China, falling steel exports, and weakened domestic demand, particularly from the troubled property sector, could weigh on future iron ore consumption.

On the Dalian Commodity Exchange, the most actively traded September iron ore contract rose by 1.17pct to 736.5 yuan (USD 102.1) per ton. However, prices remained largely flat compared to the previous morning’s close.

Coke and coking coal futures also saw modest gains, climbing 0.44pct and 0.34pct to close at 1,472 yuan (USD 204) and 883 yuan (USD 123) per ton, respectively. Yet, both were slightly down from the previous morning’s closing levels.

Meanwhile, on the Shanghai Futures Exchange, rebar futures rose 0.39pct to 3,118 yuan (USD 433), and HRC futures gained 0.46pct to 3,260 yuan (USD 452) per ton. Conversely, wire rod and stainless steel futures slipped by 0.87pct and 0.32pct, settling at 3,430 yuan (USD 476) and 12,995 yuan (USD 1,803) per ton, respectively. All the steel futures were lower compared to the previous morning’s session.

1 USD / 7.2 yuan