Iron ore, LNG put on their rally caps

Heading into the end of July, the prices of two major Australian exports – LNG and iron ore have seen a very sharp recovery this week.

Iron ore prices reached a four-week high on Thursday thanks to news of a plan to help China’s troubled property sector and improving steel margins.

Reuters reported that a dozen blast furnaces had been taken back on line by steel mills encouraged by rising prices for steel products such as rebar (reinforcing steel, used in construction)

The Financial Times reported that China’s central bank and some state owned banks will help cash-strapped property developers by issuing 1 trillion yuan ($144 billion) in loans for stalled projects – especially those where the current wave of mortgage boycotts are happening.

According to Fastmarkets MB, benchmark 62% Fe fines imported into Northern China hit $US119.74 a tonne Thursday up 6.8%.

The most-traded September iron ore contract on China’s Dalian Commodity Exchange rose 7.2% higher at $117.67 a tonne, while the Singapore Exchange’s price hit $US117.35 a tonne, up more than 20% (or $US21 a tonne) in the past fortnight – since the most recent low of $US96.16 a tonne on July 15.

Reuters reported that iron ore and other steelmaking ingredients have now been supported by what analysts at Zhongzhou Futures said is a “sharp recovery” of margins, and upbeat Chinese economic data, with industrial output and profits recovering in June.

“The impact of accelerating pro-growth policy measures will drive a solid 3Q economic recovery, suggesting that the operating environment for industrial corporates will likely improve steadily,” J.P. Morgan analysts said in a note.

Meanwhile prices of LNG in northern Asia (China, japan and South Korea) has seen a sharp recovery in the past week or so.

ANZ Bank said Thursday that North Asian liquefied natural gas prices jumped to a four-month high as competition with Europe for supplies intensify amid the energy crisis.

Japan-Korea Marker futures rose 7.3% to $US43.13 per million British thermal units at the end of the Wednesday session. Traders said Japan’s Inpex bought LNG cargo for about $47/MMBtu, one of the most expensive ever purchased for the country, the bank noted. The December contract was trading at more than $US50 a million MMBtus.

Other buyers are also scrambling to secure supplies, anticipating that Russian gas supply reductions will push more European buyers into the Asian market, ANZ Bank said.

Newcastle thermal coal futures prices are still in the range of $US390 to $US418 a tonne for near months (till October).