Property Stimulus increasing demand “
Higher demand
“Basically, sentiment for iron ore next year has turned,” said Tomas Gutierrez, an analyst at Kallanish Commodities. “This isn’t fully supported by current fundamentals, as demand now is weak. But we expect 2024 demand to be up from this year, with construction steel demand stabilising.”
Even before Beijing amped up support for the property market, iron ore prices were showing resilience. Pockets of strength in the economy – from machinery to shipbuilding and infrastructure spending – have offset weakness from private construction. Rising steel exports have also helped, as has reduced availability of scrap, an alternative to iron ore.But the most recent gains are, put simply, a bet that Beijing’s latest stimulus measures – particularly those focused on property – will put a floor under demand. Other commodities from copper to aluminum have also advanced in part on hopes of stronger Chinese consumption.
The plans for property mean “a major increase in our confidence around stable consumption from this portion of the market,” Citigroup analysts including Wenyu Yao wrote in a note. “Any dip on iron ore from here through to at least the Chinese New Year could represent a buying opportunity.”
The turn in sentiment comes with the supply chain fairly tight. Iron ore stockpiles at major Chinese ports are at their lowest level for this time of year since 2015. Likewise, inventories of steel are also thinner than usual, with Citigroup noting an unusually rapid drawdown in recent weeks.
Chinese steel production is also proving robust, and the government looks increasingly unlikely to enforce its usual cap on output at the previous year’s level. Production in the first 10 months was 1.4 per cent higher than the same period last year and is comfortably on track for another billion-ton haul in 2023.
Steel makers “largely have positive operating margins, so production will likely hold near current levels for the rest of this year,” said Kallanish’s Mr Gutierrez. And they’re expected to keep run rates high through the first half of 2024, he said."
https://www.afr.com/markets/commodities/china-s-property-stimulus-creates-iron-ore-price-conundrum-20231127-p5en47