China COVID and real estate problems cause the iron ore price to drop every quarter

Despite slight increases on Friday, Dalian and Singapore iron ore posted their second consecutive quarterly losses as market concerns over a strict zero-COVID policy and the uncertainties in China’s real estate market continued to rule The ingredient used to make steel, however, received some support from expectations of continued state support for the faltering Chinese economy and higher demand for steel in the construction sector.

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Off the day’s high of 730.50 yuan, the most actively traded January iron ore on China’s Dalian Commodity Exchange ended 0.1% higher at 721.50 yuan ($101.66) per tonne. Benchmark October iron ore on the Singapore Exchange was trading at $96 per tonne, up 0.6% from the previous session’s high of $97.55, as of 07:47 GMT.

The benchmark 62%-grade iron ore headed for China was fairly constant this week on the spot market at roughly $100 per tonne, down 18% from the previous three months. Iron ore prices were sustained by increasing demand from steel mills and restocking demand in the run-up to China’s Golden Week vacations beginning on October 1.

According to data from the Mysteel consultancy, the utilisation rate of China’s blast furnace capacity increased significantly over the previous eight weeks to reach 89.08% as of September 23, the highest level since June Run rates for electric arc furnaces increased from 45.83% on September 2 to an average of 52.3% over the three weeks that concluded on September 23.

The experts at Zhongzhou Futures stated in a note that “replenishment of warehouses before the festival is still in progress.” However, economists warned that total Chinese demand for iron ore could be muted in the months to come, particularly if Beijing maintains its zero-COVID policy.

In the medium term, analysts from Zhongzhou advised being bearish On the Shanghai Futures Exchange, hot-rolled coil and rebar both decreased by 0.9%, while stainless steel increased by 1.1% Coke and coking coal from Dalian both lost 0.3% and 0.2% of their weight On Friday, there won’t be any late-night trading on the Dalian exchange.

China’s ongoing COVID-19 challenges and a protracted real estate downturn have significantly impacted iron ore prices, leading to consistent quarterly declines. The real estate sector, a major consumer of steel, has seen reduced activity, directly diminishing demand for iron ore. In October 2024, China’s new home prices experienced their steepest year-on-year drop since 2015, with property investment falling by 10.3% in the first ten months of 2024.

Concurrently, China’s stringent COVID-19 measures have disrupted industrial operations and supply chains, further suppressing steel production and, by extension, iron ore demand. This combination of factors has led to a notable decrease in iron ore prices. For instance, in October 2024, the benchmark iron ore price fell by 17% from the previous month, marking a decline of over 50% from its peak earlier that year.

Despite government interventions, such as stimulus packages aimed at revitalizing the property market, investor confidence remains subdued. The Australian share market, heavily influenced by iron ore prices due to its significant exports to China, has also felt the repercussions. Major mining companies have reported losses, reflecting the broader market sentiment.

n summary, the interplay of China’s COVID-19 policies and the real estate sector’s struggles continues to exert downward pressure on iron ore prices, with ripple effects felt.

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