Iron ore’s outlook hangs on China’s big policy meetingAlex GluyasMarkets reporterMar 3, 2024 – 5.00amSaveShareGift this article NewListen to this article4 minCommodity pundits are at odds over the outlook for iron ore ahead of China’s crucial legislative meetings this week as traders speculate on the likelihood of Beijing announcing fresh stimulus measures.It comes as the price of the steelmaking ingredient dropped to a four-month low last week as hopes of a rebound in Chinese steel demand following the lunar new year holiday faded. Futures traded in Singapore firmed 2 per cent to trade about $US117.35 a tonne on Friday.Iron ore prices dropped almost 9 per cent last week. BloombergChina’s annual “Two Sessions” meetings, which are set for Monday and Tuesday, will unveil the country’s growth target, and other key economic and policy objectives for 2024.The meeting comes at a critical juncture for iron ore markets which have so far been disappointed by Beijing’s efforts to revive China’s ailing property sector.“The market is coming to the realisation that there will not be a big stimulus package to pull the property sector out of the mire it finds itself in,” Daniel Hynes, senior commodity strategist at ANZ, said in an interview.Advertisement“And while expectations have definitely been lowered, I still think markets are hoping for something at the Two Sessions, so if it does disappoint, there’s definitely further downside for iron ore.”Mr Hynes said there was a chance that policy support measures discussed at next week’s meeting could halt the sell-off in iron ore markets. But he isn’t holding out any hope that it could ignite a sustained rebound in prices.While ANZ is expecting iron ore prices to further slide to $US100 a tonne in the short term, Citi last week cut its forecasts by 13 per cent for the commodity.The broker now sees prices climbing to $US130 a tonne in the near term, down from its old target of $US150 a tonne. Citi attributed the revision to the slower-than-expected restart in economic activity since China returned to work from holidays on February 19.Indeed, elevated iron ore port and steel inventories have heightened concerns around demand, particularly as the country enters its peak construction period. Inventories at major Chinese steel mills jumped 25.7 per cent in mid-February compared with early in the month, the China Iron and Steel Association says.Even Beijing’s biggest-ever cut in the benchmark mortgage rate has failed to lift sentiment, despite iron ore prices usually getting a boost from such stimulus.However, Citi is still bullish on the commodity amid the possibility of fresh policy easing measures announced next week.“The upcoming National People’s Congress (NPC) will be a real test for a policy pivot,” said Citi analyst Shreyas Madabush. “Any potential measures could flip sentiment bullish and support prices.”Goldman Sachs said it saw limited downside to iron ore prices from current levels into March amid expectations that the physical market will tip into deficit in the second quarter.“Absent a significant supply shock or more significant policy stimulus supporting steel demand expectations, we believe the most likely path for price into March is one of consolidation close to current levels,” said Goldman metals strategist Nicholas Snowdon.While Westpac acknowledged that iron ore’s crunch to $US115 a tonne is in line with its view of the commodity’s fundamentals, the bank said it would not be surprised if prices popped back to $US120 a tonne heading into the NPC.Commonwealth Bank predicted that iron ore prices may dip below $US100 a tonne on the back of negative steel mill margins, but noted that prices will eventually find support in the $US100 to $US110 a tonne range.The most bearish view came from fund manager Yarra Capital last week, which warned that prices could crash $US50 a tonne to $US80 a tonne amid an imminent surge in supply and questions over demand.
FMG Price at posting:
$26.21 Sentiment: Hold Disclosure: Held
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