Iron ore had the bears out in full force just a month or so ago, with the China attempt to “destroy Australia”, the shipping crisis and more. Analysts were anticipating demand for iron ore to collapse as China reduced its steel production. Targets were lowered to US$65 to $85 a tonne by many of the larger groups. Here we are the most actively traded iron ore futures on the Dalian Commodity Exchange for May delivery closed 3.9% higher at 714 yuan ($112.11) per tonne, jumping 5% this week.
With a combination of the fear from the Evergrande debacle and China’s restrictions due to the energy crisis demand has been weaker but was clearly overdone looking at the price reaction. With the PBoCs plans to ease property curbs and pump further stimulus into the economy the need for steel making ingredients has a returning bid.
Iron ore and steel prices both rose together, pre-emptively riding the China property curve with expectations of a round of easing which the PBOC flagged.
Benchmark iron ore futures in China gained for a fifth straight week, closing nearly 4% higher on Friday before Christmas. Restocking demand at steel mills ahead of new year holidays provided a steady bid. China’s environment regulator spokesperson on Thursday put to bed rumors about a massive shutdown of industrial firms in northern area during the Winter Olympics by saying they were not true.
Spot prices of iron ore with 62% iron content for delivery to China, however, fell $2.5 to $125 a tonne on Thursday, data from SteelHome consultancy showed. This is all much higher when the analysts had been forecasting for the end of the year.
Analysts on Iron Ore
Morgan Stanley
Morgan Stanley had been forecasting the price of iron ore to average $US85 a tonne through the final quarter of 2021. The average is going to be closer to $US110 a tonne. What we have noticed is many analysts have simply changed their timeline for a price fall, expecting the price to pull back below $US100 a tonne next year.
UBS
UBS is forecasting iron ore will average $US85 a tonne through 2022.
UBS analysts told clients in a note on Wednesday; “We expect iron ore demand to slow and supply to lift into end 2021, resulting in iron ore prices falling below $US100 a tonne during Q4, and trading lower still through 2022 to average $US85 a tonne,”
Iron ore miners’ current production guidance points to supply lifting around 60 million tonnes half-on-half, while demand is set to contract. “This will drive iron ore port inventories in China higher and prices back toward the 90th percentile on the value-in-use cost curve.”
ING
ING is forecasting iron ore will be supported near $US110 a tonne through the first quarter of 2022, but dip to $US95 a tonne by the end of next year.
“The China policy landscape at the macro-level, including moves towards decarbonisation, remains a cap over the medium-term demand outlook for iron ore,” said Ms Yao.
“As such, China’s steel production is unlikely to return to the first half of 2021 level. On average, we expect prices to slide to $US100 a tonne over 2022, with the main upside risks still being potential supply chain disruptions in light of the omicron variant.”
Australian Budget
It should be remembered that even under $US100 a tonne in 2022, the Australian miners and therefore Australia’s Federal budget will be still making bouquet money. Something lost on many Aussie bears and the Chinese government.
For perspective just this Thursday, the federal government maintained its conservative estimate for the price of iron ore, with its Mid-Year Fiscal and Economic Outlook (MYEFO) forecast assuming the price falls to $US55 a tonne excluding freight (or $US67.50 freight inclusive) by the end of June 2022 the AFR reported
From The TradersCommunity US Research Desk