Dalian Iron Ore: Bulls Charge Ahead on Trade Hopes and Policy Stimulus

The iron ore market has been a pendulum of volatility in June 2025, swinging between cautious optimism and fundamental headwinds. While Sino-U.S. trade tensions and weak Chinese demand have long been bearish anchors, recent developments suggest a near-term bullish tilt. Dalian iron ore futures have clawed back losses to touch $98.84/ton, buoyed by fleeting trade optimism and whispers of policy-driven stimulus in China. Even as seasonal construction slowdowns loom, the interplay of inventory dynamics and geopolitical signals creates a compelling case for a short-term bullish stance.

Trade Optimism: A Fragile Catalyst

The recent rebound began with a June 6 phone call between Presidents Xi and Trump, which sparked a "risk-on" rally in commodities. Dalian futures surged 0.4% in the days that followed, though gains were short-lived as U.S. steel tariffs rose to 50%, squeezing demand. Yet a second wave of optimism emerged after Sino-U.S. talks in London, where both sides agreed to a framework for implementing the Geneva consensus. Beijing's pledge to lift rare earth export restrictions and Washington's openness to easing tech curbs reignited hopes of a broader trade thaw.

This technical rebound is critical. While prices remain below key moving averages, the RSI's oversold reading (34.09) and a flattening MACD suggest a short-term bounce is underway. Analysts at Everbright Futures note that "market psychology is shifting," with investors pricing in the possibility of a trade deal rather than the certainty of a breakdown.

Inventory Dynamics: The Bull's Secret Weapon

The bullish case hinges on an often-overlooked factor: China's iron ore inventories. Despite hitting record highs of 138.27 million tons, these stocks are not uniformly distributed. Port inventories are concentrated in regions with weak steel demand, while inland mills face tighter supply. If China's steel producers—many of which are state-backed—begin to draw down these stocks to meet infrastructure projects, prices could surge.

Moreover, the seasonal construction slowdown has a silver lining. Slower construction activity reduces pressure on already elevated inventories, buying time for demand to recover. Analysts at Chaos Ternary Futures argue that "the worst of the inventory glut may already be priced in," especially if Beijing accelerates infrastructure spending to offset slowing GDP growth.

Policy Stimulus: The Wild Card

China's central government is under pressure to act. With May's manufacturing PMI sinking to 46.4—a 29-month low—the case for fiscal easing grows daily. A potential stimulus package could include tax breaks for steel exporters, subsidies for green infrastructure projects, or even direct orders for rail and highway construction. Even incremental policy support could tip the balance in favor of higher iron ore prices.

Historically, such measures have been effective. In 2020, a $1 trillion infrastructure plan lifted iron ore prices by 25% in six months. While the current environment is less favorable due to global trade headwinds, the mere anticipation of policy action is already supporting Dalian's futures.

Risks and Realities: The Bear's Edge

The bullish narrative is not without pitfalls. China's steel production is declining, with demand projected to fall 1.5% in 2025. The construction sector's 3.2% contraction is no minor setback, and high port inventories remain a Sword of Damocles. Even if trade tensions ease, the long-term oversupply problem—driven by Australia's record shipments and Brazil's rebound—remains unresolved.

Moody's and BMI Research emphasize that prices are unlikely to sustainably breach $100/ton without a supply shock. Their 12-month forecast of $80–100/ton underscores the fragility of this rally.

Investment Strategy: Short-Term Bulls, Long-Term Caution

For traders, this is a textbook short-term opportunity. The confluence of technical oversold conditions, policy speculation, and trade optimism creates a setup for a 1–2 month rally. A long position in Dalian September contracts with a stop-loss below $95 could capture a move toward $100. However, traders must monitor two key metrics:
1. Inventory Drawdowns: A sustained decline in port inventories below 135 million tons.
2. Policy Announcements: Specific infrastructure spending figures from China's National Development and Reform Commission.

Longer-term investors should remain skeptical. Without a structural shift in demand or supply constraints, the $80–100/ton range is likely to persist.

In conclusion, Dalian iron ore's upward trajectory is a fleeting dance between hope and reality. Bulls have their moment, but the market's heart remains tied to China's next policy move and the durability of Sino-U.S. trade détente. For now, the bulls are leading—but they'll need more than optimism to sustain this rally.