The rise in iron ore prices in China is driven by market sentiment

Some optimism is returning to the iron ore market – its prices have risen in China, so there is hope that the minimums for iron ore are behind. Clyde Russell reports about it for Reuters.

In particular, the spot price for benchmark iron ore with an iron content of 62%, according to the Agrus agency, at the end of last week, on November 11, was $91.75/t, which is 16% higher than the three-year low of $79/t, which was recorded on October 31 . The price reached its maximum in the current year on March 8, after the invasion of the Russian Federation into Ukraine – $160.3 /t.

The main reason for the decline in prices was the weakness of the housing sector in China.

According to official data published on October 24, real estate investment in China in the 9 months of 2022 fell by 8% y/y, while real estate sales by square footage fell by 22.2% y/y in this period. With construction accounting for more than a third of China’s total steel demand, a slowdown in the residential real estate sector is clouding iron ore’s outlook.

But there are some signs that Beijing’s efforts to boost home loans are beginning to bear fruit. Changes in China’s zero-tolerance policy on COVID may also improve the situation. However, it is likely that the recent rise in iron ore prices is still largely based on changes in market sentiment rather than actual changes in steel demand, the analyst notes.

China’s total iron ore imports, including small volumes arriving by rail from neighboring countries, fell by 4.7% m/m in October – to 95 million tons, in 10 months it decreased by 1.7% y/y. A recovery is expected in November 2022, in particular, Kpler analysts predict that sea imports of iron ore will amount to about 96.87 million tons. But the volume of iron ore imports in the current year will be slightly lower than in 2021.

While the market tends to focus on weakness in residential construction, the analyst writes, general construction (social facilities) is holding up better. In the 9 months of 2022, the number of new buildings in the sector increased by more than 30%, which almost offset the decline from developers. Strong sales of electric cars during the year, in turn, increase the demand for steel, infrastructure costs remain at the same level.

Overall, the demand picture for steel outside of residential real estate is stable, and if the outlook for the residential sector improves, this could be a positive sign for China’s iron ore imports in the coming months.

As GMK Center reported earlier, January iron ore futures on the Dalian Commodity Exchange, according to Nasdaq, for the week of November 4-11, 2022, increased by 9.3% from the previous week – to 708.5 yuan/t ($99.86 /t). Thus, quotations of iron ore rose for the second week in a row after a 3-week decline.