The tide has turned for iron ore, with a combination of fundamentals and sentiment in major importer China putting pressure on prices that is likely to continue in the near term.
Iron ore contracts on the Singapore Exchange fell to $110.05 a tonne on Wednesday, the lowest closing price since August 31 and down 23.4 per cent from a 2024 high of $143.60 on January 3.
The main domestic benchmark futures contract on the Dalian Commodity Exchange fell to 819.5 yuan ($114.04) a tonne on Wednesday, a five-month low and down 19.2% from the year-to-date high of 1,014 yuan on Jan. 4.
From a fundamental perspective, there are signs that China's strong demand for imported iron ore in the first two months of the year weakened in March, and port inventories have also increased.
China will import 99.62 million tons of the key steel raw material in March, according to data compiled by commodity analysis firm Kpler. China buys more than 70 per cent of the world's seaborne iron ore.
Imports could fall short of Kpler's forecast, with LSEG data showing March imports at 91.4 million tonnes, the weakest month since April last year.
Official customs data showed that imports in the first two months of 2024 stood at 209.45 million tons, up 8.1 percent from the same period in 2023, with average daily imports of 3.49 million tons.
Even assuming a more optimistic Kpler figure of 3.21 million tonnes a day for March, that would be 8 per cent lower than imports in the previous two months.
One factor to note is that imports may have fallen in March as prices remained high for much of the first two months of the year, which would have arranged for shipments arriving this month.
Iron ore prices in Singapore were still above $130 a tonne on February 16 before falling back to current levels.
Build up inventory
Another reason for the drop in imports is that Chinese port inventories have been growing strongly in recent weeks and are back to comfortable levels by historical standards for this time of year.
Inventories monitored by consulting firm SteelHome rose to 138.2 million tons in the week ended March 8, up from 134.9 million tons the previous week.
Inventories are now 31.7 percent above the 7-1/2-year low of 104.9 million tons hit in late October.
The current inventory level is almost exactly the same as the 138.6 million tonnes in the same week last March.
In addition to weaker fundamentals, deteriorating sentiment around key sectors of the Chinese economy, including the key residential property sector, has also hurt the iron ore market.
There are concerns that the government is not doing enough to stimulate the property sector. The property sector has been plagued by a number of problems, including liquidity problems for large developers and waning interest from home buyers.
While senior officials have said they will support the real estate sector, it remains to be seen whether the new measures will be effective.
Beyond the construction sector, there were also problems in the manufacturing sector, with the official purchasing managers' index (pmi) contracting for a fifth straight month in February to 49.1 from 49.2 in January, keeping it below the 50 mark that separates expansion from contraction.
Overall, the outlook for iron ore demand in China has darkened after a strong start to 2024, and it may take a period of sustained price declines and improved market sentiment to lift the clouds.
