BHP leads mining rally as China vows to boost demand
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The news: Shares in mining giant BHP jumped in morning trade after iron ore and steel prices surged overnight.
The numbers: BHP shares were up 4.7% to $38.95 at midday AEST. Rival iron ore miners Rio Tinto (2.1%) and Fortescue (1.1%) were also higher, as ASX 200 miners lifted 2.4%.
The rally tracked a rise in iron ore futures overnight, which climbed 2.1% to USD95.15 ($144.87) a tonne.
The context: The spike in prices came after China's leadership pledged to curb "disorderly" low-price competition and accelerate efforts to boost domestic demand, Xinhua News Agency reported.
At a high-level economic meeting chaired by President Xi Jinping, officials reportedly set plans to build a more integrated and efficient domestic market.
However, Citi analyst Jack Shang said that while iron ore futures lifted on the expectation that China will push to eliminate "rat-race style" competition, lower steel output does not necessarily mean improved mill profitability.
"Sadly, history does not support this view," Shang said in a note.
"Lower steel China production has, ultimately, seen iron ore prices lower. Could it be different this time? We don't think so but we can be sure that improved China mill margins would favour higher grade Fe over lower."
Meanwhile, the world's largest iron ore producer Vale lowered its 2025 production forecast on Tuesday, amid oversupply concerns in the pellet market and reduced demand for high-quality products.
The sources: Reuters, Xinhua News Agency, Citi research
