At time of writing, iron ore prices (62% fines CFR North China) are surging to their highest price since 27 March, trading at $70.09.
This is according to the Platts index, one of the five major indices used to track iron ore prices.
What is making iron ore prices rise?
The price surge has been underpinned by speculation that China will unveil an economic stimulus package.
This mooted move would combat increased pressure on the Chinese economy amid heightened trade tensions with the US.
An opinion piece in the state-backed Global Times wrote:
‘Beijing must draw up strong stimulus policies to inject new momentum into the real economy.’
This proposed move would mimic a $578 billion stimulus move in 2008 during the GFC.
China considering further stimulus could be good for iron ore
Further signs that China is considering a stimulus package can be found in the move to cut banks’ reserve requirement ratios (RRRs).
A reserve requirement ratio is basically how much banks, in this case in China, must hang onto rather than lend or invest.
The decision by the People’s Bank of China represents a loosening of credit conditions and a $109.2 billion (US) injection of funds into the Chinese banking system.
With more money in the tank, it could point to further growth in iron ore prices as demand increases from the world’s largest producer of steel.
This would likewise improve the share price of Australia’s largest iron ore miners, companies like Rio Tinto, BHP Billiton and Fortescue Metals.
At time of writing, all three of these companies are trading higher.
For Markets & Money
PS: 2018 Mining Boom: Could these 10 cheap, top-quality Aussie mining stocks lead this year’s commodities comeback? Find out here.