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Iron ore retreats on tempered optimism about China property stimulus

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Dalian and Singapore iron ore futures reversed early gains on Thursday, retreating after a four-session rally that defied weak market fundamentals, as traders tempered their optimism about China’s stimulus package for property developers.

Benchmark January iron ore on China’s Dalian Commodity Exchange ended morning trade 0.7% lower at 723 yuan ($101.38) a tonne, after hitting its highest since Oct. 11 at 742.50 yuan earlier in the session.

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On the Singapore Exchange, the steelmaking ingredient’s benchmark December contract was down 3.1% at $94 a tonne, as of 0330 GMT.

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Iron ore has staged an epic rebound this month after the October sell-offs, fueled largely by optimism that recent policy actions in China would boost demand for steel and its raw materials.

China has eased of some of its strict COVID-19 containment rules and unveiled measures to support an ailing property sector that accounts for a sizeable portion of domestic steel demand.

“The government’s recent actions to step up support for developers’ funding could improve the companies’ financial flexibility and partly temper their near-term refinancing pressures,” said Kelly Chen, vice-president and a senior analyst with Moody’s Investors Service.

“But the impact would be subject to the extent and timing, as well as the effectiveness of these measures.”

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Moody’s is maintaining a negative outlook for China’s property sector, citing expectations of continued weakness in property sales.

This month’s sentiment-driven market rally for iron ore and ferrous metals in China came without support from fundamentals, as steel mills are reducing output amid weak demand and bracing for winter production curbs.

Steel benchmarks and other steelmaking inputs also eased.

Rebar on the Shanghai Futures Exchange fell 1.2%, hot-rolled coil dipped 1%, wire rod shed 0.7%, and stainless steel slumped 3.2%.

Dalian coking coal and Dalian coke dropped 1% and 0.7%, respectively. (Reporting by Enrico Dela Cruz in Manila; Editing by Sherry Jacob-Phillips)

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