Iron ore slides to more than one-year low with weak China demand prospects

Iron ore futures fell Monday to their lowest in more than a year, as China’s economy continues to struggle.

Raw iron ore output in the January-August period rose 4.1% Y/Y, according to official Chinese information, while stainless steel exports hit a record high in August, rising by a third from the year-earlier month, Chinese consultancy Mysteel said.

The most-traded January iron ore contract (SCO:COM) on China’s Dalian Commodity Exchange ended daytime trade -4.5% at 658.5 yuan/metric ton, its weakest level since August 2023, and benchmark October iron ore on the Singapore Exchange recently traded -2.3% at $81.55/ton.

China’s central bank supplied 14-day cash to its banking system and at a lower interest rate, signaling a possibility of further monetary stimulus, although analysts said the funding operation itself was not a major policy easing, Bloomberg reported.

After disappointing data in August, there are concerns that China’s economy could miss its annual growth target of ~5% without more financial support.

Strong iron ore prices earlier this year raised concerns of a significant recovery in Chinese iron ore production, but this has not happened, Citi analyst Ephrem Ravi said, noting Chinese iron ore capital investment rose just 4.3% Y/Y in H1 2024 despite strong prices.

In the past, robust iron ore prices have encouraged Chinese miners to produce more, helping to balance the market, Ravi said, adding that he expects 2024 capex growth to come in similar to H1 levels, keeping annual iron ore spending more than 40% below a 2014 peak.

Potentially relevant stocks include BHP (NYSE:BHP), Rio Tinto (RIO), Vale (VALE), Fortescue (OTCQX:FSUMF), Glencore (OTCPK:GLCNF) (OTCPK:GLNCY) and Anglo American (OTCQX:AAUKF) (OTCQX:NGLOY).