Iron Price Forecast: Top Trends That Will Affect Iron in 2024

How did iron ore perform in 2023?

Iron ore prices hit US$128 per metric ton (MT) in March, but then fell as low as US$105 in May as concerns about a global economic recession dampened the outlook for steel production.

China’s property sector woes were especially troubling for the steel market, and hence iron ore.

“China's slowdown in 2023 has surprised the commodity market to the downside,” David Cachot, research director on Wood Mackenzie’s metals and mining team, told INN. “In the domestic market, the property recession, rising local government debt and poor consumer and investor confidence threaten China's economic growth.”

As the world’s largest producer and exporter of stainless steel, China is naturally the world’s largest consumer of iron ore. While the Asian nation may also be the third largest iron-producing country, its domestic supply is not enough to meet demand. Hence, the country imports over 70 percent of global seaborne iron ore.

“Markets were disappointed by the weakness of the economy and by the lack of stimuli measures. However, strong steel exports offset weak domestic demand and supported iron ore demand,” analysts at Project Blue informed INN via emailed correspondence. “In 2023, steel exports have been increasing by approximately 35 percent, mainly due to a weak yuan. It offset the weak domestic demand, pushing up steel production and iron ore demand.”

Wood Mackenzie told INN that Chinese steel exports totaled 78 million MT from January to October 2023, up 36.8 percent year-over-year. Mid-year, China’s National Development and Reform Commission announced consumption stimulus measures aimed at auto, property and consumer electronic goods. This was followed in October by news that China is considering issuing a 1 trillion yuan (US$135 billion) sovereign debt plan to bolster its economy.

By mid-December, iron ore prices were back up to US$138 for the first time in a year and a half.

“Iron ore prices have been rallying since August. Fresh Chinese fiscal stimulus to shore up China’s economic recovery significantly impacted iron ore prices,” Cachot explained to INN. “Iron ore prices are once again defying expectations and are notably diverging from recent years' seasonality.”

Another factor contributing to strong steel production in the face of a weak economy in 2023, according to Project Blue, was the Chinese government taking “a laxer stance” on environmental restrictions impacting steel production.

Wood Mackenzie’s Cachot agreed. “In addition, the lack of restrictions on steel output — as economic growth is prioritized and as Beijing appears willing to guarantee support to the largest troubled developers — has further fueled the recent sentiment-driven surge in iron ore,” he noted.

What factors will move the iron ore market in 2023?

What trends and catalysts are likely to influence iron ore supply and demand in 2024?

“Iron ore demand will be, as always, driven by China steel production, and implicitly by China’s macro environment as well as by the property sector,” Project Blue’s analysts said. In addition, the firm said Chinese steel exports, port stocks and environmental regulations will continue to be important factors to watch in 2024.

Cachot said Wood Mackenzie expects to see near-term steel demand in China remain weak. “However, the destocking of iron ore at Chinese ports over the last six months is providing some fundamental support to prices,” he added. Iron ore restocking at Chinese steel mills is likely ahead of Chinese New Year.

A spike in iron ore prices is possible in Q1 if the Chinese steel export levels experienced by the market in 2023 continue into the new year, and if port stocks remain at low levels and are pushed below 100 million MT, Project Blue said.

Outside of China, iron ore supply is typically weaker in the first quarter of the year due to historically low seaborne shipments during the cyclone season in Australia and the rainy season in Brazil — the top two iron-producing countries. Both Project Blue and Wood Mackenzie see this as another supportive factor for iron ore prices in early 2024.

Another important point to watch for the iron ore market in 2024 is of course China’s fiscal stimulus measures. “Additional fiscal measures aiming at stimulating domestic consumption and the property market would be positive for the construction sector, steel production and iron ore demand,” Project Blue noted.

While it's difficult to forecast how much of an influence this may have on steel production and iron ore demand, market watchers may see signs emerging, particularly in Q1 when China’s construction season kicks off.

Cachot is less bullish on demand from a recovery in China’s property market, which he sees as the most critical downside risk for iron ore prices in 2024. “The market continues to bet on China’s policy support to boost downstream steel demand. However, subdued property investment and land sales suggest a further decline of new starts in 2024 and the years ahead, weighing on our steel demand forecast,” he explained. “Having said that, positive growth momentum in infrastructure and manufacturing will partially offset the demand loss, as will a vigorous automaking sector.”

Cachot expects iron ore demand outside of China to improve in 2024, especially with healthy demand from India and a recovery of the steel sector, although subdued, underway in Europe.

On the supply side, the outlook for 2024 seems more predictable than demand.

“Iron ore supply has been only increasing slowly. With Rio Tinto’s (ASX:RIO,LSE:RIO,NYSE:RIO) Gudai-Darri and Fortescue's (ASX:FMG,OTCQX:FSUMF) Iron Bridge mines ramping up, supply could increase at a higher pace in 2024,” the team at Project Blue said. “BHP’s (ASX:BHP,NYSE:BHP,LSE:BHP) South Flank should also reach full capacity next year, but its production increase will be offset by Yandi’s phasing down. Vale’s (NYSE:VALE) production remains the wild card, as the group has been impacted by various operational issues in 2023.”

The firm also said it is keeping an eye on logistical challenges in rail transport and at major ports in South Africa, which is the sixth largest iron-producing country in the world, along with the impact of emission-reduction mandates on the steel sector in India, the fourth largest iron-producing nation.

A supply-side factor that may weigh on iron ore prices is the potential for market control by China Mineral Resources Group (CMRG), a procurement agency established in 2022 to negotiate raw materials purchases with global mining companies. “The purpose is to mitigate market movements' impact on prices,” Project Blue said. “Any sharp price increase could trigger some reaction from CMRG with possible directives in terms of stocks or supply.”

Cachot said Wood Mackenzie views mine supply as a short-term risk in its iron ore forecast, but with upside coming from labor, logistics and weather disruptions. More stringent ESG operating standards are also a supply-side factor. “We expect supply and trade constraints to remain a feature of markets in 2024. Mine replacement to sustain record iron ore production levels is becoming more challenging in the ESG environment miners now operate in,” he said.

One important iron ore project to watch, according to Cachot, is Rio Tinto and the Simfer joint venture's massive high-grade Simandou iron ore project in Guinea, which has suffered a number of setbacks in recent years, including legal battles and high costs in the midst of a low iron ore price environment. Recently, Rio Tinto moved up its first production date at Simandou to 2025, which could later weigh on iron ore prices.

Wood Mackenzie’s iron ore price forecast on a 62 percent Fe fines basis, CFR China, is pegged at US$110 for 2024 and US$100 for 2025.