Iron ore prices experienced a significant surge on Friday on the Singapore Exchange, reaching nearly $109 per ton.
This price point marks the highest level observed for iron ore since October of the previous year, signaling a potential rebound for this crucial industrial commodity.
The increase in iron ore prices could be attributed to a multitude of factors, including shifts in global supply and demand dynamics, changes in production costs, or fluctuations in currency exchange rates.
Iron ore prices: No news from China proves positive
However, analysts at Commerzbank AG believe that the price increase was due to a completely different reason.
“The iron ore price appears to be benefiting from a lack of news from China,” Volkmar Baur, FX analyst at Commerzbank, said.
The Chinese New Year, also known as the Spring Festival, is a significant event in China that follows the lunar calendar, resulting in its date-changing annually.
This variance poses a challenge for economic data collection and analysis.
To maintain data consistency and avoid distortions due to the holiday’s impact on economic activity, the National Bureau of Statistics of China has adopted the practice of combining the data for January and February.
This approach ensures that the fluctuations caused by the Chinese New Year, which can significantly impact production, consumption, and other economic indicators, are accounted for and do not skew the overall picture of the country’s economic performance during the early months of the year.
Baur added:
In categories such as industrial production and foreign trade, we therefore have to wait until mid-March for the first official data from China.
Iron ore prices: other data releases
However, several data releases occur more frequently, and these originate from both private providers and industry associations.
The results for iron ore have been inconclusive up to this point.
Steel production in the first 41 days of the year decreased by 400,000 tons based on 10-day data, according to Commerzbank. This figure is almost the same as the steel production in 2024.
Weekly data on iron ore stocks in Chinese ports indicate that the current stock levels are relatively high when compared to recent years.
This suggests a potential oversupply or a decrease in demand for iron ore in the Chinese market.
However, an analysis of the stock data for the first few weeks of the new year reveals a different trend, the German bank said.
Unlike the previous year, which saw a rapid and significant increase in iron ore stocks during the same period, the current year has not exhibited such a build-up.
This could imply a change in the dynamics of the iron ore market in China, possibly due to shifts in demand from various sectors, changes in import policies, or adjustments in the production and inventory strategies of Chinese steel mills.
“Meanwhile, the weakest signs are again coming from the housing market, where the tentative recovery in property sales that began last September seems to be losing momentum,” Baur added.
Property sales weaken after a strong start
Property sales in China began strong in the new year, based on daily sales data from around 25 major Chinese cities.
However, since the Lunar New Year, sales have dropped significantly, and are currently down approximately 20% from the same time last year, when adjusted for the Lunar New Year period.
The Chinese property market is unlikely to experience a significant recovery shortly, according to experts.
The most optimistic forecast for 2025 is stabilization, with no indications of a strong rebound, Commerzbank said.
Several factors contribute to this prediction, including ongoing economic challenges, regulatory restrictions, and a shift in consumer sentiment.
While the market may eventually recover, it will likely be a gradual process, with the potential for further fluctuations along the way.
Baur noted:
Chinese steel producers will therefore remain dependent on exports this year, unless production is cut back.
“It remains to be seen how successful this strategy can be in times of increasing trade restrictions. However, continued weak domestic demand for steel in China from the construction sector remains a drag on the iron ore price.”
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