Iron ore prices correct after a sharp rise in early October

January iron ore futures, which are the most traded on the Dalian Commodity Exchange during October 8-15, increased by 0.1% compared to the previous week to 791.5 yuan/t ($111.26/t). On the Singapore Exchange, quotes of basic November futures increased during this period by 1.2% – to $106.1/t. At the same time, prices have fallen by 5% since the beginning of October, when there was a significant rise in the iron ore market.

Since the beginning of October, the iron ore market has been experiencing significant volatility due to the Chinese government’s economic stimulus measures. Between 1 and 7 October, commodity prices rose significantly amid hopes for new measures, including interest rate cuts and housing incentives. The rise in prices was driven by improved sentiment among Chinese retail investors, which led to a 10 percent jump in futures on the Dalian Commodity Exchange and a rise in contracts in Singapore.

However, starting on October 8, the market began to cool as investors began to question the scale and effectiveness of the stimulus measures. Some analysts noted that fundamental factors, such as weak steel demand and the instability of the construction sector in China, remained relevant. By October 9, pessimism intensified, and futures began to fall as expectations of new stimulus proved to be overstated.

By the end of last week, the market continued to be volatile. Deepening uncertainty about the Chinese authorities’ further actions weighed on futures. Analysts noted that stimulus measures have not yet yielded any noticeable results for the steel sector, and significant stocks of raw materials continued to weigh on the market.

At the same time, speculation about new economic stimulus measures by the Chinese government continues to provide some hope for a stable recovery. However, even this cannot compensate for the losses of the previous days.

This week, prices are again showing signs of some recovery, mainly due to hopes for additional stimulus measures from Beijing, which improves the outlook for the steel sector. However, activity remains extremely cautious, as no concrete actions have been presented by the government, and the recently presented World Steel Association WorldSteel steel demand forecast for 2024 is significantly downgraded from the previous +1.7% y/y – to -0.9% y/y.

ANZ Research expects iron ore prices to be in the range of $90-100/t by the end of 2024 amid weak Chinese fundamentals. According to the worst-case scenario, quotes will fall to $60-80/t.

British international commercial bank HSBC Holdings expects iron ore prices to reach $100/t in 2024. Capital Economics predicts that quotations for this raw material will vary at $99-100/t. By the end of next year, iron ore prices will fall to $85/t.