Weak demand challenges iron ore price recovery​​

In late September, despite no improvement in fundamentals, iron ore prices gradually recovered and increased by more than 14% in just three weeks.

Iron ore prices have been on a downward trend throughout the first nine months of the year due to pressure from a sharp decline in demand in China. However, in late September, despite no improvement in fundamentals, iron ore prices gradually recovered and increased by more than 14% in just three weeks. The main reason supporting prices is mainly due to psychological factors. Therefore, the outlook for iron ore prices in the final period of the year still faces many challenges due to the strong resistance from consumption factors.

China's demand problem puts pressure on iron ore prices

After a recovery period at the end of last year, iron ore prices quickly weakened again and have maintained a downward trend since the beginning of the year. According to the Vietnam Commodity Exchange (MXV), from the beginning of this year to mid-September, iron ore prices listed on the Singapore Commodity Exchange (SGX) have decreased by about 35% to the price range of 91 USD/ton, even at one point falling to a nearly two-year low.

SGX iron ore price developments in the period 2023 - 2024

Explaining this decline, Mr. Duong Duc Quang, Deputy General Director of MXV, said: “The main reason for the pressure on iron ore prices during this period is the sharp decline in demand in the leading consumer market of China, with the biggest drag coming from the real estate sector. The unresolved steel oversupply crisis in this country has caused a significant surplus of raw materials. Although demand has increased slightly in other sectors such as manufacturing, shipbuilding, etc., this increase is not enough to offset the sharp decline in demand in the real estate segment.” Data from consulting firm SteelHome shows that since falling to a seven-year low in the last week of October last year, iron ore inventories at Chinese ports have continuously increased sharply over the past 12 months and are currently hovering around 150 million tons, the highest in the past two years.

Iron ore inventories in China

In addition, the pressure does not only come from weak demand in China, but also from excess iron ore supply, which is a significant factor putting pressure on prices. Vale, the world's largest iron ore miner, reported a 4.6% year-on-year increase in production to 242.2 million tonnes in the first three quarters of this year. In the third quarter alone, Vale raised production to a six-year high of 91 million tonnes. Two other major iron ore producers, Rio Tinto and BHP, also reported strong increases in iron ore production in the first nine months of this year.

However, despite no change in fundamentals, iron ore prices recovered and increased strongly in the last week of September. According to MXV, in the 3 weeks from September 23 to October 13, iron ore prices reversed and increased from a 22-month low to the price range of 105 - 106 USD/ton, even reaching a 3-month peak of 110.5 USD/ton. In just these 3 weeks, iron ore prices have regained more than 14% of their value. So, has iron ore prices entered a recovery phase after a long period of decline?

Price outlook for the end of the year remains challenging

To answer this question, it is necessary to understand the reasons why iron ore prices have increased recently. More specifically, in the last week of September, the Chinese government launched the largest and most important economic stimulus package since the COVID-19 pandemic to revive the slowing economy.

Since then, the country's leaders have continued to issue a series of support policies, including commitments to deploy fiscal stimulus packages, demonstrating strong determination to help the economy achieve its growth target of around 5% this year. These moves have raised expectations that iron ore consumption will improve in the country, thereby supporting a sharp price increase. However, because the support is mainly psychological, and these policies need more time to take effect, iron ore prices are unlikely to maintain a sustainable upward momentum in the long term without improvements in supply and demand in the market.

Assessing the outlook for iron ore prices at the end of the year, Mr. Quang commented: “In recent weeks, the main reason supporting iron ore prices is mainly due to the improvement in market sentiment after China announced a large-scale economic stimulus package. In the context of the current difficulties of the Chinese iron and steel industry, this is considered a rare ray of hope to help the market have confidence in the recovery of this country's giant industry. However, due to the main cause stemming from psychological factors, this increase in iron ore prices is difficult to maintain for long. The most important market factor at present is still the actual demand in China.”

Steel demand forecast in China – WorldSteel

In the current context, the demand for iron ore in this country has not improved much, but mainly increased due to basic seasonal factors. Regarding the outlook for the last quarter of this year, the demand for iron ore will generally be restrained by the gloomy outlook of the steel industry as the real estate sector is still in crisis. China's largest steel producer China Baowu Steel has warned that the country's steel industry is facing a crisis even more severe than the major recessions that occurred in 2008 and 2015.

The World Steel Association (WorldSteel) recently forecast that China's steel demand, the main driver of global steel demand growth over the past two decades, is expected to decline for the fourth consecutive year to 869 million tonnes this year, threatening the demand for the most important raw material, iron ore. As a result, with the demand outlook still in the grey, iron ore prices have not been able to reverse to a new upward trend and will struggle to maintain the $100/tonne mark by the end of this year. The price outlook will be brighter next spring as demand improves during the peak consumption season.

Source: https://congthuong.vn/nhu-cau-yeu-thach-thuc-da-phuc-hoi-cua-gia-quang-sat-354425-354425.html