February 28, 2023
On the Singapore futures exchange, the contract for iron ore for delivery in the following month traded yesterday at around 127 US dollars per tonne, about 65 percent higher than at the beginning of November.
The main reason for this is strong demand for the iron ore needed to make steel following the lifting of pandemic-related restrictions in China. Daily steel production has increased by six per cent since the beginning of February. Work has resumed at many construction sites in China after the New Year holidays.
Looking at the supply side, the world’s five largest iron ore producers announced planned exports for 2023 only at the previous year’s level, which was significantly below market estimates. The strongest growth in construction activity in China is not expected until the second half of the year, so iron ore prices should remain supported in the medium term. The current price level is already well above the average of the last five years, which should benefit producers.
Goldman Sachs analysts are currently even predicting that iron ore prices could rise to as much as $150 per tonne in Q2 2023.
The US steel market is currently again affected by a significant shortage. Service centres and distributors in particular do not seem to be able to get any spot market offers from the large mills at the moment.
The global shortage of steel, now exacerbated by the earthquake in Turkey, and the ongoing war in the important steel producing country of Ukraine, further exacerbate this. In addition, many US but also European steel producers had cut back, if not completely shut down, production due to high energy costs.
Many analysts and so-called industry experts had still predicted overproduction for 2023 at the end of 2022 and thus steered many buyers of flat-rolled steel products in the wrong direction. The media’s attempts to shift this misjudgement onto the buyers alone is regrettable and simply wrong.
New home prices in China rose in January for the first time in a year, according to Deutsche Bank data. However, the increase was only 0.1 per cent and was only compared to the previous month. Year-on-year, the decline was still 1.5 per cent. Weekly data, however, point to a continuation of the recovery in February. New home sales rose 30 and 11 per cent year-on-year in calendar weeks six and seven, respectively.
Furthermore, Beijing may decide to adopt further support measures to shore up the beleaguered property sector at the National People’s Congress, which begins on 5 March and is expected to confirm this year’s growth target of five per cent. Since the end of last year, the authorities have already taken several measures, such as promoting property financing and lowering mortgage rates for first-time home buyers.
Further positive signals can be expected from China’s private household sector, which should lead to an improvement in incomes and thus also in demand as the pandemic measures are lifted.
The revival in the property market is also a good sign for suppliers of construction materials such as cement, steel, aluminium and stainless steel. However, this could put further pressure on the availability on the raw materials market – especially in view of the already prevailing shortages of steel.
