Having remained stable last week against the backdrop of the week-long nationwide holiday in China, prices of ex-Australia iron ore of 62 percent Fe content for delivery to China’s Qingdao port have moved down by $0.1/mt as of today, Monday, October 8, as compared to the closing price at the end of last week, starting the current week at $68.5-69.6/mt CFR China.
The Chinese government has taken some steps in order protect the national economy against the backdrop of the ongoing trade tensions with the US. In the absence of any signs from the US side that would point to a milder stance and a possible ending of tensions between the two countries in the near future, it is likely that the US will continue to target Chinese exports and this situation will continue to negatively impact the Chinese economy. Indeed, the purchasing managers' index (PMI) for China’s manufacturing sector was at 50.8 percent in September of the current year, down 0.5 percentage points, while the purchasing managers index (PMI) for the Chinese steel sector was at 52.0 percent, down 1.4 percentage points, both compared to August. Meanwhile, on October 7, the People's Bank of China (PBOC) cut the reserve requirement ratios of some domestic banks by 100 basis points. In this way, the central bank will inject a net RMB 750 billion ($109.2 billion) in cash into the banking system by releasing a total of RMB 1.2 trillion in liquidity, with RMB 450 billion of this amount going to offset maturing medium-term lending facility (MLF) loans.
As the negative impacts of the trade tensions on Chinese economic growth have started to be felt more strongly, the Chinese government has chosen to implement smaller production cuts compared to those it imposed last year. As a result, Chinese mills’ demand for raw materials is not expected to weaken and global iron ore prices will likely remain strong in the coming period.