Iron ore prices correct after sharp rise in April

September futures for iron ore, the most traded on the Dalian Commodity Exchange, have increased by 1.7% since the beginning of May to 888 yuan/t ($122.75/t), according to Hellenic Shipping News.

On the Singapore Exchange, quotations for June benchmark futures as of May 14, 2024 increased by 0.6% compared to the price on May 1 – to $117.25/t.

In April, prices for iron ore on the Dalian exchange rose sharply. At the beginning of the month, they were at $110/t, and at the end – $120/t. At the same time, the price on the Singapore Exchange was $101/t at the beginning and $118/t at the end of April.

The April rise in iron ore prices reflected market hopes that the Chinese government would take measures to support the steel industry and expectations of a wave of post-holiday replenishment of iron ore stocks by steel mills. At the same time, the market was cautious, as manufacturers’ finished goods inventories were still high. Overall macroeconomic expectations also improved slightly after China announced a policy to control steel production.

As a result, ore prices gradually recovered during the month amid improved market sentiment and a pickup in construction activity. In addition, some of the country’s mining companies announced the start of maintenance, which increased interest in iron ore imports.

«The rise in iron ore prices is no longer related to macroeconomic factors, but to a rebound caused by improved market sentiment,» said an analyst at Sinosteel Futures.

At the same time, in the middle of the month, market participants’ expectations of government incentives deteriorated slightly due to higher-than-expected GDP growth in China in the first quarter – by 5.3%. At the same time, the real estate sector, the main consumer of steel, was still facing problems.

The steady improvement in ore demand overcame the impact of disappointing news about government stimulus, and prices continued to rise. At the same time, the sharp rise in prices in April raised concerns that the Chinese government might intervene to curb it.

Since the beginning of May, iron ore prices have shown a slight increase. Prices and demand are consolidating after a sharp rise in April, and neutral forecasts for domestic steel consumption do not contribute to a further rapid recovery in prices.

«There will still be some growth in demand in the future, but the supply of raw materials will be strong enough. Market confidence is being strengthened by more special bond issuance,» Shanghai Metals Market analysts said.

In the short term, iron ore prices are likely to stabilize or decline slightly as pre-holiday restocking has stopped and the availability of raw materials in ports remains high and reaches a seasonal high. At the same time, the summer season is approaching, which is characterized by reduced activity in the steel market.

HSBC Holdings, a British international commercial bank, expects iron ore prices to reach $100 per tonne in 2024. The global market remains tense despite the real estate crisis in China, which worsens the outlook for steel demand in the country, the bank said.

Capital Economics predicts that ore prices will range from $99-100/t. In the second quarter and fourth quarter, prices will be at $100/t, and in the third quarter – $99/t. By the end of next year, prices for iron ore will fall to $85/t. The key reasons for the negative forecast include expectations of weak global steel demand.