Iron-Ore Prices Buckle as China Property Market Slump Drags On

ADELAIDE, Australia – Iron ore prices have fallen to a three-year low as a sharp slowdown in Chinese homebuilding coincides with Beijing’s zero-Covid strategy to dampen demand for the steelmaking product.

The price of benchmark iron ore—one of the world’s most traded commodities—fell 17 percent in October from September to end the month 50 percent below its 2022 level, set in March.

Analysts say iron ore supply is outstripping demand as China builds fewer new homes, while last month’s Communist Party congress disappointed those hoping for policies to revive the property market. Meanwhile, authorities continue to impose emergency lockdowns to contain the spread of Covid-19.

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Iron ore is often seen as the lifeblood of China’s economy. Investment bank Jefferies estimates that the Chinese property market accounts for about a third of global demand for seaborne iron ore. China – which produces more than half of the world’s steel – buys an average of seven out of every 10 tonnes, according to Australian government data.

“The much-anticipated 20th CPC National Congress failed to deliver any concrete policy to stimulate the sluggish property market,” said Malan Wu, head of steel and raw materials markets at consulting firm Wood Mackenzie. “Instead, the housing-market collapse continues with no signs of recovery in the near future.”

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There are some bright spots for steel demand, analysts, workers and others say. China is spending more on infrastructure, and automakers are expanding production after the pandemic disrupted supply chains. Still, this is not enough to offset the loss of demand for the real estate sector, Ms. Wu said.

According to S&P Global Commodity Insights, which monitors market prices, the daily price of asine fell to $79.50 a metric ton on October 31, the lowest since November 2019. The price has increased in recent days and traded at $83.75 a ton on Thursday. Iron ore started at 95 dollars per ton last month and was sold at 162 dollars per ton in March.

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Although some banks, including Jefferies, think that if bad weather hits the main mining centers again, prices may fall, others are not so optimistic. Citi and Australia and New Zealand Banking Group are among those that have cut their short-term rate forecasts.

The iron ore shortage is likely to ease pressure on steelmakers by helping to reduce raw material costs at a time when they are being squeezed by weaker steel prices, but it will hurt the profits of mining companies including BHP Group Ltd. and Rio Tinto PLC.

China’s property market is in turmoil, and the recent Communist Party congress offered little policy help on the way.

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In a report last month, Rio Tinto – the world’s largest iron ore producer – said a loss of confidence in China’s property market and Covid-related disruptions to construction activity had reduced the nation’s steel output. It said a global economic slowdown in general threatens to hurt demand for commodities.

James Agar, BHP’s group chief procurement officer, told an industry conference in Australia on Wednesday: “While the stimulus has generated growth in infrastructure and autos, we expect the improvement in the housing sector to take a bit longer.” “The zero-Covid policy remains a loophole that creates more uncertainty.”

Prices of other commodities have decreased, but not as much as iron ore. Copper, which fell 1.5% in October, is about 30% below its record high in March, when Russia’s invasion of Ukraine boosted prices of the industrial metal.

Copper supplies remain tight and analysts see the metal as important for power projects that Chinese policymakers are pushing to mitigate the impact of the property slowdown.

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In contrast, iron ore faces a negative upside as mild-steel property development slows, according to Goldman Sachs analysts. Beijing has imposed borrowing limits on developers while insisting that properties are for living, not for speculation.

Goldman said in a note last month: “It’s too late to eliminate these building blocks,” noting that China’s 35% year-over-year decline in new property starts and steel’s role in the energy transition is less than zero. is The bank predicts that the price of iron ore will drop to 70 dollars in the near future.

The decline in policy support at the recent party congress in China coincides with production cuts at steel mills and nationwide shutdowns, Citi analysts said on Wednesday as they lowered their three-month iron ore price forecast to $70 a tonne from $95. . ton

China has maintained its zero-Covid strategy with rapid and widespread lockdowns, mandatory quarantines and – in some cases – business closures. A Chinese industrial park that houses the Foxconn Technology Group‘s

The state-of-the-art iPhone factory battling the Covid-19 outbreak went into a week-long shutdown on Wednesday.

A change in China’s Covid strategy could slow down iron ore prices, said Daniel Hynes, an analyst at ANZ. Without such a pivot, the market background could deteriorate further, he said.

“There are very few signs that we can see that things are going to turn around,” he said.

Write it down Rhiannon Hoyle at [email protected]

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