Iron Ore Prices Rebound on Optimistic Demand Outlook

Chinese iron ore prices rebounded after three consecutive days of declines, supported by expectations of a surge in restocking demand from downstream users next month.

On Wednesday (March 21), the most-traded iron ore futures on the Dalian Commodity Exchange increased 0.9 percent to US$73.13 a tonne after touching a four-month low in the previous session.

“Demand release came a bit later this year, which dampened the confidence of the market. But it is almost certain that demand at downstream sectors will recover in early April,” said Wang Yilin, steel analyst at Sinosteel Futures.

In fact, iron ore prices have been under pressure for the last few weeks, and further losses might be ahead for the metal.

In February, imports from China, the world’s largest consumer of the metal, fell 16 percent. Production cuts to meet government restrictions and the Lunar New Year break slowed down demand.

FocusEconomics analysts expect iron ore prices to continue trending downwards in the coming months, amid elevated supply and the likely easing of production restrictions in China.

“China will remain central to any changes in iron ore prices. However, other factors, such as the rollout of trade tariffs in the US may also affect the price,” they said.

Barclays (NYSE:BCS) has forecast that the benchmark price will probably drop back near US$50 in the second quarter as the profitability of mills ebbs, undercutting demand for higher-grade material.

Similarly, Liberum Capital analysts believe that the rising preference for high-quality material will wane and the premium it commands over lower-quality supply will shrink.

“We expect grade premiums will narrow with steel profitability as weaker credit and housing markets impact steel demand,” they said. “The iron ore market is oversupplied.”

Firms recently polled by FocusEconomics estimate that the average iron ore price will be US$69.90 in Q2. The most bullish forecast for the quarter comes from Euromonitor International, which is calling for a price of US$80.40; meanwhile, BMO Capital Markets is the most bearish with a forecast of US$60.

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Securities Disclosure: I, Priscila Barrera, currently hold no direct investment interest in any company mentioned in this article.