Iron ore steals the show after China pumps up the stimulus, copper also gains

Copper rallied back above $US10,000 a tonne and iron ore broke through $US100/t after China’s top leaders stepped up efforts to revive economic growth for the world’s largest metals consumer.

The price of copper rose more than 2 per cent to a three-month high on the London Metal Exchange overnight after the official Xinhua News Agency reported that China’s Politburo will push for the real estate market “to stop declining” and called for “forceful” rate cuts.

That followed a Bloomberg report that China is considering a $US142 billion ($206b) capital injection into the biggest state banks.

“They’re trying to restore confidence in their economy,” said Michael Cuoco, head of metals at StoneX Financial. “They’re sending a message to their populace that they understand that there are problems and hardships and easing financial constraints is needed.”

Risk appetite across financial markets got a further boost during the North American trading day with data showing that the US economy bounced back from the pandemic in stronger shape than previously estimated. China’s economic stimulus also comes as global central banks, including the Federal Reserve and the European Central Bank, start an easing cycle by cutting interest rates.

Mining stocks surged. Glencore rallied as much as 5.8 per cent in London and Freeport-McMoran added 7.5 per cent in New York. Rio Tinto surged 3.6 per cent in London, extending a weekly rally to more than 9 per cent as investors weigh the impact of China’s policy on one of the company’s biggest products, iron ore.

“We have seen a period of time with weakening market conditions, and the stimulus is probably bringing stability back,” said Jakob Stausholm, chief executive of Rio, in an interview at Bloomberg’s New York office.

The move by the Politburo followed a raft of Chinese stimulus measures earlier in the week aimed at boosting its lacklustre economy. Some had questioned whether that would be enough to ease deflationary pressures, or lift property and infrastructure consumption, both of which are crucial for metals.

“We think that this is a little bit an overreaction to the upside. These policy measures, from China or the Federal Reserve in the US, most likely won’t result in any demand increases anytime soon,” said Bart Melek, commodity strategist at Toronto Dominion Bank.

In May, copper surged to a record above $US11,000/t on a wave of speculative bets on future shortages, but the rally quickly ran out of steam as the focus shifted back to weak demand and soft market conditions in China.

Policy risks from the US have also clouded the outlook for base metals, as well as the timing of the recovery in global growth, Citigroup said in a note. The bank highlighted concerns about further softening of the US labour market, uncertainty heading into the US presidential election, and weakness in manufacturing.

Markets may continue to be choppy and volatile between now and the rest of the election, StoneX’s Cuoco said.

Copper closed up 2.7 per cent at $US10,080.50/t, while zinc climbed 3.4 per cent and aluminium rose 2.9 per cent. Iron ore traded as high as $US101.25/t in Singapore, the highest since September 2.

Bloomberg