“Sentiment has picked up, and we always expected China’s stimulus measures to take some time to bite, but authorities have backed that up with comforting messages which has given steel and iron ore markets a boost in recent weeks.”
Already supporting demand
Signs that China’s stimulus is fuelling a rebound in growth were evident earlier this week in the country’s manufacturing purchasing managers index (PMI), which rose more than economists expected, to 50.2 against expectations for 49.8.
The non-manufacturing gauge, which measures activity in the construction and services sector also rose, to 51.6, ahead of consensus forecasts. The 50-level separates expansion from contraction.
“The outcomes suggest that front-loaded policy support is likely supporting demand already,” said Vivek Dhar, Commonwealth Bank’s mining and energy commodities analyst.
CBA said manufacturing PMIs in March are likely to provide a better read of the true state of China’s economy, given the effects of the Lunar New Year period in the first two months of this year.
Concerns about supply disruptions have also intensified because of the war in Ukraine, given its iron ore sector accounts for 40 million tonnes of iron ore a year, with Russia a further 25 million tonnes.
Heavy rain in south-east Brazil earlier in the quarter, linked to the La Niña weather pattern, boosted iron ore prices as local producers were forced to halt operations.
The steel-making commodity’s latest advance also comes despite Beijing’s escalating intervention into iron ore markets, as it tries to cool the rally in prices.
Concerns about speculation and hoarding caused China’s state planner and market regulator to instruct traders to release excess inventory and verify concerns over speculation, dragging iron ore into a bear market just a fortnight ago.
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Plans were then leaked regarding Beijing's intention to set up a single, state-backed platform for purchasing the bulk commodity.
However, strategists have expressed doubt about the effectiveness of China’s intervention based on previous attempts. Instead, they point to fundamentals as the key driver of iron ore prices.
“Even though China will continue to intervene in markets and pressure prices, to sustainably lower prices you need to see steel margins fall,” Mr Dhar said. “So long as this increasing steel demand is baked into the market, it’s difficult to see prices falling like policymakers are wanting.”
$A boost
Elevated iron ore and energy prices lifted the Australian dollar to US73.48¢ on Thursday night – its highest level since November. The currency remains on track to end the quarter near US74¢, CBA says.
The bank updated its fair value estimate of the $A earlier this week following the release of the Reserve Bank of Australia’s commodity price index for February.
Commonwealth Bank’s fair value for the currency now sits in the range of US78¢ to US90¢, centred on US84¢.
But, fundamentally, China's been buying more iron ore than it needs. Imports actually increased 8.1 per cent in January and February. But this is ending up being stockpiled in Chinese ports. And those reserves are now at the highest level they've been in 12 months, and rising.
Weakness to continue. The broker expects the trend to continue in the years to come. As a result, it is forecasting an average benchmark iron ore price of US$95 a tonne in 2025. After which, it expects further softening to an average of US$93 a tonne in 2026.
On the iron ore supply side, we have seen only modest increases in exports from higher cost jurisdictions like India and other parts of Asia and Europe. Thus stronger iron ore demand has not been offset by incremental supply ultimately leading to higher iron ore prices.
From the supply side, China's iron ore imports in January-February climbed 8.1% from the previous year to reach 209.45 million mt, customs data showed.
China imports Iron Ore primarily from: Australia ($72.5B), Brazil ($18.2B), Canada ($1.67B), Peru ($1.47B), and South Africa ($1.36B). The fastest growing import markets in Iron Ore for China between 2021 and 2022 were Sierra Leone ($324M), Oman ($62.8M), and Estonia ($8.3M).
Australia shipped 736 million tonnes – more than 80% of iron ore exports – to China in 2022. Last year, China's steel mills made up the majority of global steel production.
The fall in the iron ore price is largely being caused by weak steel production in China. Credit: A. PAES via Shutterstock.com. Iron ore futures prices continued their fall on Monday to the lowest level in more than four months.
Iron Ore Spot Price (Any Origin) is at a current level of 109.79, down from 124.39 last month and down from 128.37 one year ago. This is a change of -11.74% from last month and -14.47% from one year ago.
Australia and Brazil are among the world's largest iron ore producers and hold a large portion of the world's iron ore reserves. Australia makes up half of the world's iron ore exports. Brazil exported around 20 percent of the world's total iron exports.
Historically, Iron Ore reached an all time high of 219.77 in July of 2021. Iron Ore - data, forecasts, historical chart - was last updated on April 11 of 2024.
Iron ore prices are expected to fall 20% year on year to 130 USD/MT in 2022. According to the World Bank, the average yearly price of the mineral was 162 USD/MT, up 48% from 2020 levels.
BEIJING - China's iron-ore imports in 2023 hit a record high, up 6.6% from a year before, customs data showed on Friday, thanks to stronger demand amid a lack of government-mandated steel output caps and higher-than-expected steel exports.
China, which buys more than 70% of global seaborne iron ore, is on track to import 99.62 million tons of the key steel raw material in March, according to data compiled by commodity analysts Kpler.
Although nothing can be said with certainty, it's highly unlikely that we're set to run out of iron in the foreseeable future. This is down to the vast reserves available, as well as the constant advances in mining technology and ongoing recycling efforts to guarantee a steady supply of iron for years to come.
China and Australia are bound together on iron ore in a mutual dependency. China takes 85% of Australia's iron ore exports, and Australia accounts for 61% of China's iron ore imports.
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