AFR article. 29 Jan.
Iron ore reaches for $US150 a tonne on China bets
The spot price for iron ore has risen 24 per cent to start the year and there’s the potential for it to top $US150 a tonne after next week’s Lunar New Year break.S&P Global Platts said its benchmark spot price rose $US9.15 or 6.6 per cent to $US147.90 a tonne on Friday; it closed 2021 at $US119. Chinese financial markets and most businesses will be closed all next week.
“Some market participants expected medium-grade fines demand to improve as buying interests in both seaborne and portside market were firm, providing a lift to prices,” Platts reported in its daily bulletin on Saturday AEDT.
“Sentiments have been strong, and big traders have been buying a
lot of the Australian products on both spot market and ports,” another
China-based trader source told Platts.
The steelmaking ingredient’s most-traded May contract on China’s Dalian Commodity Exchange ended Friday’s daytime session 7.6 per cent higher at 829 yuan a tonne, after earlier touching 830 yuan, its strongest since August 31.
Front-month March iron ore on the Singapore Exchange leapt as much as 7 per cent to hit a contract high of $US147.25 a tonne.
The year-to-date rally reflects in part a shift to easier monetary policy at the People’s Bank of China as the nation’s overall growth slows.
The International Monetary Fund this week cut its 2022 forecast for China by 0.8 of a percentage point to 4.8 per cent; China’s economy is estimated to have expanded 8.1 per cent in 2021.
Post Olympics demand
In a note this week, Goldman Sachs said Chinese policymakers are expected to pull forward some five-year projects and roll out stimulus measures on consumption to bolster the economy.
In addition, there’s an expectation that China will ease restrictions on steelmakers as well as other heavy industrial firms after the Beijing Olympic Games conclude on February 20. Steel output has been checked for several months to limit air pollution.
Separately, President Xi Jinping this week said China’s efforts to lower carbon emissions should not negatively impact other priorities including securing enough energy and materials to meet the nation’s needs.
Spot price also have been lifted by seasonal weather disruptions in both Brazil and Australia, exacerbated somewhat this year by COVID-19 staff shortages too.
Longer-term clouds
China’s demand for steel at least over the next few months appears strong.
In a note this week, S&P Global Platts analyst Jing Zhang wrote that China’s crude steel output is expected to rise in the first half of 2022 and then decline in the second half, with full-year production remaining within 2021 levels.
China produced 1.03 billion tonnes of steel in 2021, according to worldsteel, 3 per cent less than in 2020.
In a broader metals outlook comment, Capital Economics forecasts an increase in steel output in China this year with the global steel market moving into balance from a deficit in 2021.
However, Capital Economics expects spot iron ore to averaging just $US70 a tonne in 2022, $US50 in 2023, $US40 in 2024 and then $US30 in 2025.
“In our view, China’s economy is in for a period of structurally lower growth in the years ahead, particularly in the metals-intensive property sector, which should weigh heavily on metals prices,” Capital Economics said.
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