China steel-making boss says iron ore prices ‘unreasonable’

The moves in iron ore extended a rout among commodities and related stocks on US markets overnight on Tuesday. BHP and Rio Tinto were both down more than 2 per cent in New York trading and charted similar declines when trading resumed in Sydney.

US markets were reacting to the latest trade data from China, which showed export demand from the regional giant had fallen in October at a greater rate than forecast. Chinese imports, however, rebounded, surprising analysts that had widely forecast contraction.

Data showed that iron ore imports held near 100 million tonnes, helped by low inventory levels among China’s steel mills.

Goldman Sachs became the latest research house to revise up forecasts for the iron ore price on Tuesday. Analyst Nicholas Snowdon lifted his price targets to $US130 a tonne and $US120 for three and six months, respectively.

Defying expectations

“The commodity’s fundamental and price resilience has defied expectations. Indeed, rather than facing a surplus for this year, the iron ore market is now set for a clear deficit,” he added.

Mr Snowdon also said while China’s steel demand remained in clear contraction, the impact on iron ore demand had been limited by outperforming steel production underpinned by a lack of expected policy cuts, sustained steel export strength and a restrained scrap market.

In addition, prices have been helped by disappointing iron ore supply trends from Australia and Brazil, alongside low supply chain stocks.

“The path into 2024 now points to a balanced market versus previous surplus, suggesting no imminent glut risk ahead,” he said.

“With onshore mill restocking likely ahead of Chinese New Year and low supply chain inventories, price resilience with greater risk to the upside than downside is now the year-end setting.”

Goldman Sachs’ iron ore upgrade follows similar moves by Citi earlier this month.

In a note to clients, Citi highlighted the “surprising” effort made by Chinese policymakers to issue an additional 1 trillion yuan ($217.8 billion) in central government bonds to support the ailing economy.

“These actions are perhaps suggesting that the government is determined to further support the economy amid the recent tentative recovery and may be aiming to engineer a strong start in 2024,” Citi analysts Wenyu Yao and Maximilian Layton wrote.

That said, not all are convinced. Daniel Hynes, senior commodity analyst at ANZ, is sticking with a $US100 per tonne fourth quarter price target, saying the upward move in prices had been “confounding”.

“We’ve seen a real sentiment-driven move,” he told The Australian Financial Review.

“We haven’t seen the expected drop-off we were expecting a few months ago, but it feels more like a stay of execution, to be honest.”

Mr Hynes added that if demand from the public and private sectors didn’t eventuate soon, then prices could “fall away pretty quickly”.

With Bloomberg.