Iron Ore Lacks Foundation for Price Increases, Markets Should Maintain Rational Expectations

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Source: China Metallurgical News Agency

Recently, due to the outbreak of Middle East geopolitical conflicts and the resumption of domestic work after the holiday, iron ore prices have rebounded rapidly, attracting market attention. However, a deeper analysis of the current iron ore supply and demand relationship shows that the rebound lacks substantial support and does not have a foundation for sustained price increases. All market participants should remain rational and be cautious of the realistic risks behind overly optimistic expectations.

Currently, iron ore supply is sufficient, and future growth is promising. Since the beginning of the year, global iron ore supply has remained strong, with a 15.1% year-on-year increase in shipments in the first two months, including a 17.4% increase in February. China’s cumulative iron ore imports reached 210 million tons, up 10.0% year-on-year. In the short term, due to Middle East geopolitical conflicts, several ships carrying high-grade Brazilian iron ore fines have changed course from the Middle East to China. Before shipping resumes through the Strait of Hormuz, transshipment strategies are likely to continue, further increasing China’s iron ore supply. In the longer term, projects such as Simandou, Western Slope, Capaneima, Iron Bridge, and Amslor are expected to ramp up production, providing significant incremental supply and further exacerbating oversupply.

On the demand side, both domestic and external factors are contracting. In January, global pig iron production decreased by 6.0% year-on-year, with China down 10.9%. Since 2024, high steel exports have been a key factor in absorbing China’s crude steel capacity, but due to escalating trade frictions and export management, China’s steel exports in the first two months fell sharply by 8.1% year-on-year. The focus now is on the speed of downstream terminal demand recovery. However, high-frequency market survey data show that nationwide cement outbound volume decreased by 4.8% year-on-year during the Lunar New Year, and the resumption rate and funding availability for non-real estate projects have also declined, indicating a mild recovery in peak season demand. Additionally, since August last year, steel mills’ profitability has continuously contracted, with 247 mills maintaining a profit rate around 30%, which is low. Mild demand recovery and low profitability levels do not support increased steel production.

Both overall inventory levels and structural pressures are significant. Port inventories of iron ore remain near a historic high of about 180 million tons, an increase of over 20 million tons year-on-year. Since the beginning of the year, mainstream varieties have continued to accumulate, with fine ore (Mik粉) increasing by 82.1% from the start of the year, and PB粉 and Newman粉 also increasing by over 20%.

Overall, the rebound in iron ore prices at the end of February is more driven by sentiment and technical correction rather than improvements in supply and demand fundamentals. The upward movement lacks a solid foundation. Under the ongoing supply surplus, the upside potential for iron ore prices is firmly limited. Market participants should look beyond short-term fluctuations, recognize the fundamental pattern, and approach price movements rationally.

Author | China Mineral Resources Research Institute

Editor | Jin Zihan

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