ron ore tipped to hit $US130 a tonne by year end

Joanne TranMarkets Reporter

Nov 1, 2023 – 4.36pm

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Citi says the recent rally in the iron ore price could be extended if China ramps up its policy stimulus, tipping the steel-making commodity to hit $US130 a tonne by the end of the year.

Iron ore prices this week have rallied to the highest level in more than five weeks amid hopes for stronger Chinese demand. Vale SA, one of the top iron ore producers, also said there were upside risks to prices after China’s government clearly signalled support for infrastructure activity.

Citi has tipped iron ore to hit $US130 a tonne in the December quarter. Louie Douvis

Singapore iron ore futures traded higher on Wednesday afternoon, climbing 1.1 per cent to $US120.45 a tonne on the December contract. Dalian futures rose 2.1 per cent to $US134.44 a tonne.

Prices for the commodity have whipsawed this year after expectations of large Chinese stimulus boosts to support the nation’s ailing property sectorhave not been met. Instead, small increments of government support have been put in place.

The US broker lifted its short-term price forecast of the commodity to $US120 a tonne, up from the prior projection of $US100 a tonne, but sees “further upside potential” towards $US130 a tonne. That depends on more policy stimulus from Australia’s largest trading partner and potential risks to production from strike actions by workers at BHP’s mines.

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BHPBHP Group

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It comes as hundreds of train drivers at BHP’s Western Australian iron ore operations voted last month to start industrial action amid a pay dispute. The measures could include work stoppages, speed reductions and work bans if negotiations for better pay and conditions fail.

In a note to clients, Citi highlighted the “surprising” effort made by Chinese policymakers last week after they issued an additional 1 trillion yuan ($217.8 billion) central government bond.

“These actions are perhaps suggesting that the government is determined to further support the economy amid the recent tentative recovery and may be aiming to engineer a strong start in 2024,” analysts Wenyu Yao and Maximilian Layton wrote.

“We believe iron ore is still the one most exposed to further policy support compared to other commodities.”

The broker added that it did not expect any large infrastructure projects in China to kick off anytime soon to drive up steel demand, given that the upcoming Winter season usually restricted construction activity.

However, the broker said that should China continue to step up it stimulus efforts in the next few months, “iron ore could climb further from here”.

“The next few months will be a key window to watch to see if Beijing introduces additional supporting measures and engineers a strong start to 2024. We, and the market, will keep our focus on this,” they said.

Citi noted China’s surprisingly robust steel export market from the emerging markets was also supporting onshore steel production. It cited the country’s September export figures of 8 metric tonnes of steel, up 56 per cent year-on-year. In the first nine months of 2023, total exports increased by 32 per cent year-on-year to around 68 metric tonnes.

Citi joined a number of brokers in June in predicting that the rally in iron ore prices would not last. At the time, it warned that a lack of meaningful stimulus in China would hold back the expected recovery in steel demand.

Weaker than expected China data on Tuesday dragged the ASX’s material’s sector lower. China’s factory activity contracted in October, to 49.5 this month from 50.2 in September. Bloomberg’s survey of economists had an estimate of 50.2.

Mining stocks rebounded on Wednesday, tracking the higher iron ore price. Fortescue Metals, which jumped 2.5 per cent to $22.86. ASX heavyweight BHP added 1.6 per cent to $45.19 and Rio Tinto rallied 2.4 per cent to $120.44.

With Bloomberg