Commodity markets appear to have delivered their verdict on China's plans to stimulate its economy, betting that Beijing's boost to infrastructure spending will work.
China's central bank cut the amount of cash that banks have to hold as reserves for a fifth time in a year on January 4, a move that will free up as much as $116 billion in new credit.
The looser monetary policy announcement came two days after the national rail operator said it planned 6,800 km (4,225 miles) of new track this year, a 40% lift on what was laid last year.
This implies a substantial hike on the 802.9 billion yuan ($117.2 billion) invested in rail in 2018, cash that will flow through to increased demand for steel, copper and also for coal used to provide energy to process ores into refined metals.
Certainly, the prices of these commodities have improved in recent days, taking heart from Beijing's stimulus, and also from some renewed optimism that progress is being made to resolve the U.S.-China trade dispute.
Iron ore for delivery to China has been rising since late November, and January 7's close of $74.80/t was up 2.6% since January 3, and almost 16% since the 4-month low of $64.55/t on November 27.
The exception so far is thermal coal, with cargoes at Australia's Newcastle Port dropping to $98.4/t in the week to January 4 from $99.74/t the prior week.
However, Newcastle coal is still almost 1% higher than the 6-month low of $97.5/t reached on November 23.
Thermal coal is also likely to have struggled in recent weeks given Beijing was discouraging imports in December as part of efforts to limit total 2018 imports to a level similar to those in 2017.
While this failed, it did cause seaborne imports of coal to drop to 15 million tonnes in December, the lowest monthly total since February 2016, according to vessel-tracking data compiled by Refinitiv.
Source:sxcoal
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