Iron ore and steel prices experienced a decline on Tuesday amid risk-off sentiment, with the futures price of iron ore on the Dalian Commodity Exchange (DCE) fell by 0.1% to 874 yuan per metric ton (approximately 120.65 US dollars). Nevertheless, due to positive prospects for the demand in China’s real estate sector, iron ore prices still surged significantly by 16.6% in April, marking the largest monthly increase since June 2023.
Starting from May 1, China will enter the May Day holiday, and the market will be closed from the 1st to the 3rd. Some traders pointed out that there was a risk-off sentiment in the market before the holiday, so the drop in prices of ferrous metals today is quite normal.
The recent measures to increase infrastructure spending and the continued expansion of manufacturing activity in China provide support for ferrous metals, leading to a neutral to slightly optimistic industry outlook. Last week, the Chinese government stated that it would guide local governments to accelerate project construction progress.
During the first quarter of 2024, the price of iron ore fell by nearly one-third and dropped below $100, but staged a partial rebound in April. Whether rising or falling, it is closely related to the dynamics of the Chinese real estate market, which is an important driver of steel demand. China is the world’s largest consumer of steel, and if the huge downstream industry becomes active, it will drive up steel demand, thereby stimulating an increase in the prices of upstream materials such as iron ore.
In April this year, the Chinese real estate market was very active, especially in the last few days of the month. Many cities fully lifted or canceled purchase restrictions and introduced significant directional changes in real estate policies, focusing on destocking. The Chinese stock market also reacted, with a large number of real estate stocks collectively hitting the daily limit-up, indicating that the Chinese government is making efforts to promote a comprehensive recovery in the real estate market, and April this year is likely to be a turning point and watershed moment.
Previously, analysts including Howard Lau of HSBC Holdings stated that the average price of iron ore this year is expected to exceed $100. The basis for this is that the global market is still in deficit in 2024-25. Outside of China, particularly the increase in steel production in India, will contribute to iron ore consumption. Analysts do not expect a significant increase in iron ore production in major producing countries, but demand is expected to remain strong.
