In recent weeks, iron ore prices have dipped below the crucial threshold of $100 per metric ton for the fourth time in just two weeks. This decline marks a significant drop of 30% from the peak prices seen in January 2024. Analysts are puzzled by the resilience of iron ore prices, which have not fallen much further despite the severe crisis in China's property sector and the lack of effective policy support from the Chinese government to mitigate this downturn.
The ongoing slump in the Chinese construction sector has resulted in a dramatic decrease in steel demand, which in turn has affected iron ore prices. Many steel mills in China are finding it unprofitable to purchase iron ore at current market rates. As a result, analysts predict that prices may continue their downward trajectory, potentially falling into the mid-to-late $80s per metric ton. This forecast is based on the significant margin pressures that steel mills are currently facing, which have made it increasingly difficult for them to justify high iron ore purchases.
The situation has been exacerbated by the fact that rebar prices have reached their lowest levels since 2017, while hot-rolled coil prices are at their lowest point in the past four years. These declines reflect the broader challenges facing the steel industry in China, where the construction sector has historically accounted for nearly 30% of total steel demand. The lack of robust support measures from the Chinese government has left market participants feeling uncertain and pessimistic about the future.
Analysts have expressed concern that the current support measures announced by the Chinese administration are insufficient to revitalize the property sector. This sector's struggles have a cascading effect on steel demand, as reduced construction activity leads to lower requirements for steel products. Without significant intervention or stimulus from the government, the outlook for both the property and steel sectors remains bleak.
Furthermore, the global steel market is closely monitoring developments in China, as the country's economic health plays a crucial role in determining demand for iron ore and other raw materials. The interconnectedness of these industries means that any prolonged weakness in the Chinese economy could have far-reaching implications for iron ore prices worldwide.
