Key Points
- Iron ore prices have been trading around US$135 a tonne, defying expectations amid Chinese property woes and slowing economic growth.
- December is historically bullish for iron ore price and momentum typically carries over through to February
- Citi expects iron ore to hit US$140 a tonne and believes any near-term price weakness could be a buying opportunity
If you had told me that iron ore prices would cross US$135 a tonne amid China's great property collapse, slowing economic growth and still-high interest rates – I would not believe you.
But here we are. Iron ore prices have been floating around US$135 a tonne this week and that's pushed Fortescue above $27 for the first time in history around afternoon trade on Wednesday.
As everyone's favourite iron ore proxy rallies into all-time highs – Here are a few data points to keep an eye on.
#1 Seasonality Trends
December has historically been the most bullish month of the year for iron ore.
- Average gain since 2008: +10.1%
- Average gain in last ten years: +9.4%
- Average gain in last five years: +14.6%
Across the three above time frames, iron ore has finished the month positive at least 90% of the time.
The gains tend to ease in the new year and fizzle by March. The average performance since 2008 includes:
- January: +1.9% (positive 64.3% of the time)
- February: +3.5% (positive 57.1% of the time)
- March: -3.3% (positive 50% of the time)
#2 Restocking and Chinese New Year
Chinese commodity consultancy Mysteel expects iron ore prices to remain elevated as "winter replenishment of iron ore in steel mills usually continues until mid-to-late January, underpinning iron ore prices."
A flurry of restocking activity typically occurs in the days and weeks preceding China's week-long Lunar New Year holiday. It'll take place between 10-17 February 2024.
#3 Citi says Buy the Dip
Citi analysts
upgraded their 3-month price forecast for iron ore to US$140 a tonne (from US$120 a tonne) on November 21.
“Any dip in iron ore from here through to at least Chinese New Year could represent a buying opportunity," the analysts said.
“We now expect in our base case that China will likely increasingly push towards fiscal expansion to engineer investment-led growth, and this time with a focus on urban village redevelopment/affordable housing to support overall property market-related activity in 2024."
Iron ore futures have eased around 2.3% on Wednesday afternoon to US$132.3 a tonne. Could this be the buyable pullback that Citi is talking about?
#4 China Hates High Iron Ore Prices
Citi's analysis has been pretty spot on – Except we've hardly seen any dips in iron ore.
There was a brief 4% dip between 27-28 November to US$127 a tonne after China's National Development and Reform Commission (NDRC) announced an investigation into commodity prices including iron ore. It wanted to clamp down on activities such as the manipulation of prices, price gouging and misinformation.
"NDRC and other authorities will closely track market trends and step up supervision on spot and futures prices of iron ore,” the commission said in a statement.
These events are surprisingly common during periods of rapid iron ore price increases and tend to place downward pressure on prices.
#5 Waiting for Clues
China's leaders started a closed-door meeting earlier this week to discuss economic targets and map out stimulus plans for 2024, according to Reuters.
"China's government advisers have told Reuters that they would recommend economic growth targets for 2024 ranging from 4.5% to 5.5%, with the majority favouring a target of around 5%," the article notes.
The economic targets are expected to be endorsed at the meeting but not made public until China's annual parliament meeting, which typically takes place in March.
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