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The Chinese property sector's slump would constrain iron ore prices despite Beijing's blast furnace steel production and ore consumption remaining stable. Although some analysts believe prices could be volatile this year, others believe they will moderate. Spot prices for 62% grade iron ore have decreased by 5% since the beginning of 2024 to $129.29 a tonne, including freight for delivery to Tianjin, China.
Research agency BMI, a unit of Fitch Solutions, said it maintains its 2024 iron ore price forecast at an annual average of $120 tonne. This is “in light of continued resilience in prices over the positive sentiment stemming from hopes of a turnaround, with some form of stimulus from the Chinese government,” it said. The year-to-date average in 2024 thus far is $129/tonne.
BMI said prices have retained their resilience since the beginning of 2024 on the back of improved market sentiment following the People’s Bank of China’s announcement of a 50 basis point cut to the reserve requirement ratio. On Tuesday, the Bank cut the five-year loan prime rate by 25 basis points to 3.95%, higher than market expectations.
The research agency said prices have also been supported by strong Chinese imports in 2023 and expectations that this trend will continue throughout the first few months of 2024. “In 2023, Chinese imports rose by 6.6% y-o-y to a record high of 1.18 billion tonnes amid the absence of official government caps on steel output. We further note an increase of iron ore inventories at Mainland Chinese ports, rising to 124.6 million tonnes as of February 2, 2024,” it said.
However, over the last couple of months, the Chinese government has moved forward with a series of stimulus measures to turn around its ailing economy, which have supported iron ore prices, the ING Think commodity strategist said. BMI said continued weakness in the Chinese property sector, which has been weighing on overall economic growth, will likely cap iron ore price growth over the coming months. Prices remain sensitive to stimulus announcements, it said.
New home starts – the biggest steel demand driver – fell sharply in 2023 by more than 23%. “This should continue suppressing steel demand in 2024,” she said. BMI said on the supply side, major iron ore miners announced relatively stable production guidelines for 2024, which will work to limit the upside for iron ore prices along with China’s regulation of futures markets.
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