Monsters of Rock: Analysts split on iron ore as Chinese commodity data drops
Iron ore prices have retraced in recent weeks from six month highs of over US$130/t to around US$116/t as investors have digested a complex network of factors in China playing push and pull on the cost of our headline commodity.
Its seen relatively little movement in recent days in iron ore stocks BHP (ASX:BHP), Rio Tinto (ASX:RIO) and Fortescue Metals Group (ASX:FMG) as week downstream demand has seen steel margins head negative right as China’s peak construction season is due to begin.
China’s iron ore imports from January through March suggest the reopening trade has, as predicted by luminaries like Twiggy Forrest and Mike Henry, been good for iron ore producers.
Imports lifted 15% year on year to 100Mt in March, suggesting measures to support the property market were stirring fundamentals.
“Iron ore imports increased to 100mt amid a slew of measures to support the property market,” ANZ’s Daniel Hynes and Soni Kumari said in a note this week.
“Steel production is recovering, which could keep iron ore imports relatively steady.”
Not every analyst is bullish on iron ore demand though.
“The increase in iron ore imports in Q1 2023 is consistent with the increase in China’s steel output in the first two months of 2023. We think it will be challenging for China’s steel output and iron ore imports to keep expanding in coming months given China’s steel mill margins have remained in negative territory over most of the last four weeks,” Commbank’s mining expert Vivek Dhar said.
“It’s worth noting that China’s net steel product exports surged by 30%/mth and 83%/yr in March to the highest level since September 2016. Net exports rose by 82%/yr last quarter.
“The rise in net steel product exports reaffirms concerns that China’s steel demand following the re‑opening of China’s economy may already be fading.
“It will be challenging for China’s net steel product exports to remain elevated through 2023 given our expectations that the global economy will continue to slow. Advanced economy demand is particularly vulnerable given our forecast that high interest rates will force most advanced economies into a recession.”
On the other hand, analysts from Fitch say iron ore and steel prices will be supported, but struggle to break resistance near highs seen last year (around US$160/t in April 2022).
“Iron ore and steel prices remain elevated in April 2023 despite numerous downside risks to prices. Our outlook for both metals remains positive in 2023 from current levels, as we expect prices to remain supported by Mainland China’s demand on the back of the country’s recovery in 2023,” they said.
“That being said, global demand remains weak, and our expectation for a number of major economies to slip into recession in 2023 will ensure ferrous metals demand and price strength remains capped.
“While we do not expect a collapse back to pre-Covid lows, we see strong resistance near the highs seen in 2022.”
Iron ore prices rose earlier this week on the expectation that a tropical cyclone in WA’s north could damage infrastructure around Port Hedland and prevent shipments from major iron ore mines in WA’s north.
On the ASX today the materials sector lifted 0.84% to 4pm AEST.
Gains were led by gold miners buoyed by the underlying commodity price’s lift to US$2048/oz overnight, less than US$30/oz off all time highs.
Meanwhile battery metals have been heavily bought despite falling lithium prices in China, with Allkem (ASX:AKE), Pilbara Minerals (ASX:PLS) and IGO (ASX:IGO), which announced plans to deliver a downstream nickel plant with Andrew Forrest’s Wyloo in Kwinana today, were all up more than 5%.
Prices of lithium hydroxide continue to fall, according to Fastmarkets, with carbonate flat.
But spot spodumene rose back over US$5000/t in its latest assessment, highlighting the margin pressure growing on Chinese converters at current prices.
Fastmarkets analysts say prices could rise later this year with supply not arriving as quickly as expected.
“There are going to be some delays to supply coming online that were expected, and that’s going to support prices and push them up in the second half of the year,” battery raw materials analyst Jordan Roberts told Fastmarkets reporters Dalila Ouergi and Justin Yang.
Currently fetching US$48.50/kg, Fastmarkets expects Asian hydroxide prices to average US$62/kg in the third and fourth quarters of 2023.