The market’s futures contract for delivery in March rose just over 2 per cent this morning to $US131.05/t. Prices have not topped that mark since early June last year.
The increase has been sparked by renewed optimism about China’s rebound from COVID and the prospects of higher demand for steel in the wake of new stimulus measures.
BHP said China’s reopening should help stabilise global commodities demand but the prediction came with caveats.
The Big Australian on Tuesday reported a drop in first-half profit after the strict virus policies in its largest customer derailed demand for key commodities including iron ore, its biggest revenue earner.
Beijing’s swift exit from COVID Zero that began in December is now breeding optimism that consumption will recover and offset slowing growth elsewhere in the world.
Raw materials from iron ore to copper and coking coal have rallied in anticipation of the return of Chinese buyers, although an extended Lunar New Year holiday and high stockpiles have dented hopes of an immediate lift to consumption.
“China has been buoyed by the green shoots we’ve seen since the start of this calendar year,” BHP chief executive Mike Henry told an earnings call. “So there’s a lot there that’s giving us confidence that we will see an acceleration in the Chinese domestic economy.”
However, the risk remains that China could fare worse than expected if the global downturn hits demand for its products. “If we see a sharper pullback in the US and Europe, that will have a bigger impact on Chinese exports,” he said.
Demand for iron ore from China’s vast steel industry is now expected to improve, BHP said in its earnings report, although it warned that the impact on profitability at steel mills, which affects the premium paid for higher grade ore, remains uncertain.