Iron ore
has been the best-performing industrial metal this year, with prices rising
more than 17% year-to-date to November. We believe prices will be supported
looking into 2024 amid optimism around China’s recovery and further support for
the country’s property sector
Iron ore
prices have managed to stay above the key $100/t mark for most of the year.
Prices are now trading at their year-to-date highs, fuelled by strong demand
and multi-year low inventory levels in China.
Over the last couple of months, the Chinese
government has moved forward with a series of stimulus measures to turn around
its ailing economy, which have supported iron ore prices. However, there are
still concerns when it comes to China’s economy, particularly surrounding
anything related to the property sector, which accounts for about 40% of demand
for iron ore. The country’s property new home starts – the biggest steel demand
driver – fell sharply in 2023, now down more than 23% year-to-date. This should
continue to suppress steel demand in 2024.
In its latest efforts to revive the
struggling steel-intensive property sector, China plans to provide at least 1
trillion yuan of low-cost financing to the country’s urban village renovation
and affordable housing programs. The latest plan comes after Beijing announced
fiscal stimulus, including raising the budget deficit with the issuance of an
additional 1 trillion yuan of sovereign bonds. This has added to the positive
sentiment in the iron ore market. With China ramping up investment in
infrastructure and manufacturing, it should boost demand for steel in these
sectors in 2024, supporting iron ore prices looking forward.
However, the uneven pace of China’s economic
recovery has capped the upside for iron ore prices. The country’s manufacturing
PMI has remained in contraction for most of the year, underscoring the
fragility of its economic recovery.
With the recovery path for China still bumpy,
we believe iron ore will remain sensitive to Chinese policies. Prices are
therefore likely to remain volatile, at least in the short term.
China iron ore
imports remain elevated
China saw growth in global seaborne iron ore imports in 2023, with the
country’s full-year imports on course to rise for the first time since 2020.
While China's iron ore imports dropped 1.8% month over month to 99.4 million
metric tonnes in October, marking a second successive monthly decline, imports
for the first 10 months were 59 million tonnes higher year over year at 977
million tonnes.
At the same time, iron ore inventories at
Chinese ports have reached an eight-year low as mills have been cautious about
restocking amid property woes. China’s iron ore port inventory is a key indicator
that reflects the supply and demand balance, as well as the safety net and
imbalance between the iron ore supply and the steel mill demand. We believe low
inventories should support iron ore’s price at elevated levels, with restocking
before February’s Lunar New Year likely to boost prices in the first quarter.
China’s healthy appetite draws down stocks
(Million
tonnes)