Iron ore futures experienced a decline for the sixth consecutive session on Monday.
This downward trend was fueled by escalating trade tensions between the United States and China, the world’s leading consumer of iron ore, Reuters reported.
The strained trade relationship between these two major economies has created uncertainty and negatively impacted market sentiment.
However, the decline in iron ore futures was partially mitigated by positive Chinese manufacturing data.
The encouraging manufacturing figures from China, a key indicator of economic activity and demand for industrial commodities like iron ore, provided some support to the market and prevented a steeper fall in prices.
Despite the positive Chinese data, the ongoing trade tensions between the US and China continue to weigh heavily on the iron ore market, contributing to the prolonged downward trajectory of futures prices.
The May iron ore contract on China’s Dalian Commodity Exchange (DCE) was trading at 796 yuan ($109.32) a metric ton as of 0254 GMT, down by 0.75%.
The benchmark March iron ore on the Singapore Exchange dipped 0.15% to $103.1 per ton. Earlier in the session, prices had fallen to 788 yuan, their lowest point since January 16.
Mexico: an unlikely ally
US Treasury Secretary Scott Bessent revealed in a press conference on Friday that Mexico has put forth a proposal to align with the United States by imposing matching tariffs on goods imported from China.
This development comes in the wake of President Donald Trump’s announcement last week, where he declared his intention to impose an additional 10% tariff on Chinese imports, escalating the ongoing trade tensions between the two economic giants.
Bessent’s disclosure underscores the potential for a coordinated approach between the US and Mexico in addressing trade imbalances with China.
While the specifics of Mexico’s proposal remain undisclosed, it signals a willingness to stand with the U.S. in exerting economic pressure on China.
This alignment could have significant implications for global trade dynamics, potentially reshaping supply chains and influencing negotiations between major economies.
Starting March 4, all steel and aluminium imports will be subject to a 25% tariff, as per Trump’s announcement.
Possible impact of the alignment
This move is expected to escalate trade tensions with China, specifically targeting their steel industry.
Chinese transshipment of steel, which brings in an estimated $7 billion, will be disrupted by the US steel tariffs.
This will undercut an important source of sales for China’s struggling steel sector, according to a Reuters report last week.
A private-sector survey released Monday showed that China’s factory activity accelerated in February due to increased supply and demand, as well as a recovery in export orders.
The official PMI data released on Saturday showed that manufacturing activity expanded at the fastest pace in three months in February, which is in line with the positive trend in the survey.
China stimulus measures
The launched stimulus measures in China are helping the economy recover amid weak demand and a struggling property sector, and this reading would likely reassure officials.
Meanwhile, coking coal and coke, other steelmaking ingredients on the DCE, rose by 1.46% and 1.31%, respectively.
Steel benchmarks on the Shanghai Futures Exchange also saw gains.
Hot-rolled coil advanced nearly 0.6%, while rebar, stainless steel, and wire rod climbed by 0.3%, 0.3%, and 0.54%, respectively.
“Last but not least, market nervousness is likely to have increased in anticipation of the parliamentary session in Beijing, which begins on Wednesday,” Volkmar Baur, FX analyst at Commerzbank AG, said.
He added:
Hopes are high that continued weakness in the property market in particular will lead to calls for further support measures, which in turn holds the potential for disappointment.
The Chinese economy is likely to remain a drag on iron ore this year, limiting upside potential.
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