China’s stimulus is fueling a surge in iron ore

Chinese iron ore and property stocks rose after three of the country’s biggest metropolitan areas eased rules on homebuyers. This move follows last week’s the central government’s stimulus packagewhich was aimed at stabilizing the vicious recession of the real estate market.

Bloomberg reports that Shanghai, Guangzhou and Shenzhen have eased home buying rules:

On Sunday, the commercial center of Guangzhou became the first Tier 1 city to lift all restrictionssaying it would no longer review homebuyer eligibility and limit the number of homes owned.

both Shanghai and Shenzhen have said they will allow more people to purchase residences in suburban areasas well as allowing others to buy more homes. Shanghai, China’s financial hub, and Shenzhen, the southern city known for its technology industry, also announced they would cut the minimum down payment rates for first and second homes to 15 percent and 20 percent, respectively, in a bid to to stimulate demand.

Goldamn’s James McGeoch told clients this AM:

The show of the weekend was this China’s fiscal to come before the holiday, as a “gift” on the 75th anniversary of the National Day, published in the press release of the second meeting of the State Council. Focus on ownership and consumption in the titles I read and iron ore increases by 10% (SGX $112 and DCE +10%).

Iron ore’s stunning multi-day reversal took prices from $90/t to $108/t. Overnight gains topped 11%, adding to 11% last week after the central government’s move to implement stimulus (read Here).

A separate note from Goldman’s Thomas Evans earlier last week told clients to “iron ore rallies fade“on potential short coverage ahead of the long holiday in China, noting “steel overcapacity and rising iron ore supply are the two biggest hurdles facing the ferrous supply chain that cannot be fixed anytime soon.”

In equity markets, a Bloomberg gauge of Chinese property shares rose as much as 14 percent after the news. It was also mentioned that China’s central bank will allow mortgage refinancing.

Bloomberg’s Jake Lloyd-Smith wrote a note titled this Am “Iron Ore’s Sudden Euphoria May Be Overblown,” in which he said:

Beijing’s pre-holiday rescue, plus follow-up steps in key urban centers, will go a long way to lifting spirits. Over time, that can stabilize the real estate market. But whether that’s enough to convince mills that have complained of an industry-wide slump to reverse course and actually increase steel production on a sustained basis next quarter remains to be seen.

The slowdown in China’s housing market has been a significant challenge for steelmakers, with some output falling and warning about an outlook that reflects 2008 and 2015.

Meanwhile, Citigroup analysts led by Wenyu Yao noted that China’s stimulus will be supportive: “The bullish momentum could persist into LME Week.”

The most interesting aspect of China’s recovery will be its shape. Analysts warn that the real estate market is still facing titles.

“It may take time and it may still prove challenging to change downward residents’ views on existing policies,” Morgan Stanley’s Cheung told clients.

Perhaps the days of a “V-shaped” recovery are long gone.

By Zerohedge.com

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