Shares of the largest mining company BHP Group Ltd. (BHP) have experienced a sharp decline since October, falling from near $62 per share to $52 on Monday (18 November local time). Meanwhile, shares of iron ore giant Rio Tinto Plc (RIO) and Fortescue, Australia’s third-largest and the world’s fourth-largest iron ore producer, have also seen significant pullbacks recently.
The immediate cause of the miners’ share price declines has been weak iron ore prices, which have been dragged down by a 5 per cent fall over the past week due to the lack of direct economic stimulus from China’s recently announced US$1.4 trillion package.
In today’s trading, benchmark December Iron Ore Futures on the Singapore Exchange (SGX) were up 2.78 per cent at $99.4 a tonne as of 7:00 GMT, after hitting a high of $100.3 a tonne during the session. Behind the iron ore price’s renewed upward momentum which is testing the important psychological $100/t, there is hope that top consumer China is likely to further stimulate its economy.
On Monday, the most actively traded January Iron Ore Futures on China’s Dalian Commodity Exchange (DCE) ended the day 1.87 per cent higher at 761 yuan ($105.08) a tonne.
Analysts said recent demand for the key steelmaking ingredient remained strong, supporting iron ore prices. Data from Mysteel showed that the average daily output of hot metal by surveyed steel companies was 2.36 million tonnes as of November 15, up 0.8% week-on-week and the highest since early August.
Meanwhile, Chinese officials announced that they would reduce some real estate transaction taxes from 1 December as the latest policy support for the property market. This follows a series of disappointing data from China’s largest steel-consuming sector, the property sector, despite a series of stimulus measures introduced since late September. Judging by the recent trend in iron ore prices, hopes have been rekindled that the Chinese government may announce more stimulus measures in the coming months.
Analysts at ANZ said in a report that the market expects a high likelihood of additional stimulus measures as Beijing prepares for the possibility of higher tariffs once Trump takes office in 2025. ANZ reiterated its short-term price target of $95 per tonne for iron ore.
Meanwhile, some market participants believe that the current rise of iron ore prices are results of a large decline in the previous period as well as lower raw material prices attract replenishment interest.
However, the supply and demand fundamentals of the iron ore market has not been improved in a meaningful way, and with the supply of iron ore next year to further loosening, iron ore fundamentals will further deteriorate, price will likely continue to move downward.
