A train loaded with iron ore
A sharp sell-off last week saw iron ore endure its largest single-day price drop since at least 2008 owing to concerns about the spread of the Delta coronavirus variant in China © REUTERS

Commodity prices from iron ore to oil rallied on Tuesday as concerns eased about the impact of Covid-19 on the Chinese economy.

Iron ore prices soared 8 per cent, while oil prices traded back above $70 a barrel, as traders grew more confident about the prospect for demand in China.

The price moves come after a sharp sell-off last week in which iron ore endured its largest single day price drop since at least 2008 owing to concerns about the spread of the Delta coronavirus variant in China.

Benchmark prices for iron ore have fallen about 35 per cent from a record high of $233 a tonne set in May owing to worries about China’s economic recovery and Beijing’s efforts to cut steel production in a drive to reduce pollution.

But China’s announcement on Monday that it had reported no new local Covid-19 cases for the first time since July eased concerns about a sizeable impact to commodity demand in the world’s largest consumer of raw materials.

Line chart of Brent ($/barrel) showing volatile trading in oil market

“It seems that the concerns about demand that had still predominated last week have lost much of their scare factor, at least for now,” analysts at Commerzbank said. “One key part in this is the clear success that the Chinese authorities are having in combating the spread of the Delta variant.”

Benchmark iron ore prices on Tuesday rose by $12.1 to $148.6 a tonne, according to S&P Platts, after Goldman Sachs said the raw material had been “oversold”.

Oil prices have rebounded by almost 8 per cent in the past two days, with traders also saying the sell-off has gone too far. Crude prices had retreated last week to less than $65 a barrel, having started August higher than $76 a barrel.

Opec and its allies are due to meet next week but have so far not responded to calls from the US to speed up the return of barrels to the market after they made deep production cuts last year. The group agreed in July they would steadily add more barrels as demand recovered, but warned of uncertainties over the strength of consumption given the Delta variant.

A fire at a Mexican oil platform is also expected to disrupt supplies from the member of the expanded Opec+ group.

“Confidence seems to be growing that the pandemic hiccups across Asia and in particular China are temporary,” said Norbert Rücker at Julius Baer, but he said he expected oil prices to remain volatile around the low $70s rather than heading much higher. “Production is set to catch up with consumption as the petro-nations ease their output restrictions and the shale business continues to expand.”

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