Global iron ore prices have dropped below $100 a tonne to a 22-month low as subdued demand from China continues to exert downward pressure on the market. However, prices could improve marginally if China comes up with some stimulus measures to boost its economy, analysts say.
“After retaining resilience early in 2024, iron ore prices have been trending downwards throughout the year as weak Chinese demand shows no signs of reversing. We expect negative sentiment over the sluggish Chinese property sector, the downfall of which now looks irreversible, to remain, further capping prices,” said research agency BMI, a unit of Fitch Solutions.
Mills cut purchases
Poor demand for steel in China drove steel mills to cut their iron input buying. “China’s housing oversupply crisis and the government’s lack of stimulus measures toward debt-ridden property developers increasingly hampered the outlook for construction activity,” said the Trading Economics website.
This was underscored by China’s NBS Construction PMI falling to a one-year low in July, while housing prices sank the most since 2015, it said.
Currently, iron ore prices (with 62 per cent iron content) are quoting at $97.99 a tonne, the website said.
BMI said iron ore (62 per cent iron content) prices at Qingdao Port were hovering below $88/tonne as of August 16 2024, marking the lowest level since November 2022. The year-to-date average in 2024 thus far is $109/tonne.
Price outlook
“We are revising down our 2024 iron ore price forecast from an annual average of $120/tonne to $110/tonne, as subdued demand in China amid the ongoing property downturn continues to exert downward pressure on the iron ore market,” said the research agency.
The Australian Office of the Chief Economist (AOCE) said there was a steep fall in the ore’s prices in the first quarter of 2024 from $130 a tonne in January to $95 during March-end. “Iron ore prices stabilised in the June quarter, with the benchmark iron ore spot price (basis 62 per cent fines CFR Qingdao) averaging around $107 a tonne,” it said.
Trading Economics said data showed that Chinese steel production plunged by 9 per cent in July from June, limiting the outlook of iron ore input purchases by blast furnaces.
Inventory rise
“Also echoing the poor demand from steel producers, iron ore portside inventories in China continued to rise through July despite seasonal forces encouraging draws,” it said.
BMI said China’s ports have continued a strong build-up, rising by 31 per cent year-to-date to 149.6 million tonnes as of August 16, which has the potential to place a cap on prices in the coming months.
It said steel production in China and thus demand for iron ore remains sluggish, with property sector weakness adding to the grim picture. “In January-June 2024, China’s production of crude steel decreased by 1.1 per cent year-on-year… The domestic steel industry has been facing a continued setback, with the steel Purchasing Managers’ Index (PMI) falling to 42.5 in July 2024, down from 47.8 in June, highlighting a decline in steel sector activity,” it said.
Chinese steel sector in crisis?
Dipping steel production, with the sub-index dropping 7.4 points to a four-month low of 38.5, as well as plunging new orders, which fell to 40.3 in July from 49.4 in June, contributed to the bleak outlook. “China’s overall manufacturing PMI remained in contractionary territory for the third consecutive month in July, with a reading of 49.4 (June: 49.5).
Additionally, Baowu Steel, the world’s leading steel producer, said in August that the domestic steel sector remains in crisis, which is likely to be more prolonged and severe than previous downturns,” the research agency said.
Contrasting with the lagging steel sector, China’s imports of iron ore grew by 6.7 per cent year-on-year in the first seven months of 2024, adding largely to inventories. It signalled that domestic consumption remains muted.
The research agency said on the supply side, iron ore production remains healthy across major miners, which will work to limit the upside for iron ore prices.
BMI said the 2024 price forecast of $110/tonne suggests that prices will likely improve slightly from current levels towards the end of the year. It would be contingent upon stimulus announcements from China.
