Iron ore price movements have captured attention as prices dipped below the psychological threshold of $100/ton last week, marking the fourth time it has done so in the past two weeks. Prices have declined by 30% from their peak earlier this year in January, when they reached $144/ton.
According to Reuters, iron ore prices have now fallen for six consecutive weeks, largely due to the struggles faced by Chinese steel mills and elevated inventory levels at ports.
Analysts predict that iron ore prices could witness further declines in the remainder of 2024 due to the persistent slump in China’s construction sector, which has led to a significant drop in steel prices. This situation has left many steel mills unprofitable, reducing their appetite for purchasing iron ore.
Iron ore has been one of the worst-performing commodities this year, with its value declining by 25%. The only bright spot in this market is in Australia, where iron ore continues to trade at around $100/ton, despite the challenges presented by China.
However, Australia’s Department of Industry, Science, and Resources recently forecast that prices could drop to approximately $96/ton by the end of this year.
Reuters quoted an analyst from Goldman Sachs as saying that with iron ore consumption continuing to weaken, the market needs to see a reduction in supply to prevent oversupply. The analyst added that prices below $100 are necessary to trigger market activity.
Meanwhile, the dire financial situation of Chinese steel mills is becoming increasingly apparent, with almost none of them reporting profits. This could lead to further production cuts, exerting additional downward pressure on iron ore prices.
Iron ore prices peaked in January 2024 and fell to a low of $98/ton in April.
So far, China has attempted various measures to revive its economy, including interest rate cuts. However, even these moves have elicited a lukewarm response from commodities like iron ore, which would typically benefit immediately from such actions.
Interestingly, despite the challenges in steel production, China’s iron ore imports for the first half of 2024 reached 612 million tons, marking a 6.8% increase.
However, some analysts argue that this surge in imports is unrelated to steel production and instead reflects a buildup in inventories.
