Citibank forecasts that the iron ore price could reach US$130 a tonne by the end of the year, buoyed by potential policy stimulus from China. This week, iron ore prices have surged to their highest level in over five weeks, partly fuelled by expectations of stronger demand from China.
Vale SA, a leading iron ore producer, also indicated that there could be upward price movements following clear signals from the Chinese government supporting infrastructure activities.
Singapore iron ore futures rose 1.1% to US$120.45 a tonne on Wednesday, while Dalian futures rose by 2.1% to US$134.44 a tonne. However, prices have fluctuated throughout the year due to unmet expectations regarding substantial Chinese stimulus measures for the nation's struggling property sector. Instead, the government has implemented smaller support increments.
China is determined to support its economy
In a client note, Citibank analysts remarked on the "surprising" move by Chinese policymakers, who recently issued an additional 1 trillion yuan (A$217.8 billion) central government bond. "These actions are perhaps suggesting that the government is determined to further support the economy amid the recent tentative recovery and may be aiming to engineer a strong start in 2024," they stated.
Despite not anticipating major infrastructure projects in China to boost steel demand soon, given seasonal construction restrictions, Citibank believes that iron ore remains highly susceptible to further policy support compared to other commodities.
China’s unexpectedly strong steel export market, particularly to emerging markets, also underpins onshore steel production. September's export figures stood at 8 metric tonnes, a 56% increase year-on-year. The first nine months of 2023 saw a 32% year-on-year increase to about 68 metric tonnes.
Revised short-term price forecast
Citibank has revised its short-term price forecast for iron ore from US$100 to US$120 a tonne, acknowledging further potential to reach US$130 a tonne. This projection hinges on increased policy stimulus from China and possible production disruptions due to strike actions by workers at BHP’s mines. Notably, hundreds of BHP’s train drivers in Western Australia have voted for industrial action over a pay dispute, threatening work stoppages and other measures.
While Citibank, along with other brokers, predicted in June that the iron ore price rally might not endure, citing the absence of significant stimulus in China, recent developments have altered this outlook. Mining stocks have rebounded, following the upsurge in iron ore prices, with notable gains by Fortescue (ASX:FMG) Metals, BHP (ASX:BHP), and Rio Tinto (ASX:RIO).
Investors and analysts will maintain a watchful eye on China’s policy moves in the coming months, which could further influence iron ore prices and the broader materials sector.