July 21, 2020 / 2:44 AM / 13 days ago

Iron ore futures resume uptrend, tracking China equities rally

* Brazil’s Vale Q2 output rises 5.5% y/y despite pandemic

* BHP hits record iron ore output but warns of risks from virus

* Iron ore “more detached from fundamentals” - Morgan Stanley

By Enrico Dela Cruz

MANILA, July 21 (Reuters) - Iron ore futures rose on Tuesday, mirroring upbeat sentiment in Chinese equities and base metals markets, and shrugging off Brazilian miner Vale SA’s higher output in the second quarter.

Iron ore on the Dalian Commodity Exchange jumped 2.6% to 839.50 yuan ($120.19) a tonne in early trade, stretching overnight gains after three consecutive sessions of losses.

Iron ore on the Singapore Exchange advanced 2.4% to $108.60 a tonne, after a four-day decline.

China stocks rose 3% on Monday and were headed for further gains after regulators moved to bolster the market by lifting equity investment cap for insurers and encouraging mergers and acquisitions among brokerages and mutual fund houses.

Iron ore continues to defy fundamentals, with the Dalian benchmark contract on track for its fifth month of gains in a row and spot prices hovering near one-year highs, prompting some analyst to warn of a sharp correction.

“A recovery in shipments from Vale and rising ore stocks in China’s ports point to an imminent correction,” analysts at Morgan Stanley wrote in a note dated July 19.

Vale’s second-quarter iron ore production grew 5.5% from a year earlier and was 13.4% higher than the first quarter, despite the impact of the novel coronavirus.

Another major iron ore producer, BHP Group said fourth-quarter output rose 7% to a record but warned the resurgence of COVID-19 outbreak threatened the short-term demand outlook.

Iron ore has become “more detached from its fundamentals”, Morgan Stanley analysts said. “As a preferred play on China’s stimulus, the iron ore price appears to be increasingly driven by financial markets.”

Construction steel rebar on the Shanghai Futures Exchange was up 0.5% by 0156 GMT, while hot-rolled coil advanced 0.6% and stainless steel added 0.8%.

Coking coal rose 1.7% and coke gained 0.7%.

$1 = 6.9846 yuan Reporting by Enrico dela Cruz; additional reporting by Melanie Burton in Melbourne; Editing by Subhranshu Sahu

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