2023:The Downward Trend Of Iron Ore Prices Will Persist Until China’s Economy Recovers

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Iron ore has had a dismal year, with Chinese macroeconomic issues and the Covid-19 pandemic continuing to depress prices. 

Despite this discouraging outlook, there may be some hope in sight. If China can make an economic resurgence in late 2023, it could provide long-term stability for iron ore commodities.

Iron ore prices have decreased dramatically from the record high of US$171/t in March to as little as $81/t recently, near its lowest since 2020. Singapore’s futures market has been steadily declining for seven consecutive months, making this the worst stretch since 2013. China leads global seaborne iron ore demand at two-thirds, yet Covid-19 containment measures hamper their real estate industry which is key to supporting iron ore consumption.

Since the 20th Communist Party Congress, sentiment has divided China’s property sector policies and remains negative, and the government keeps reiterating that “housing is for living in, not speculation.”

China’s property industry has steeply declined for over 12 months, with many cities introducing sales bans due to the Covid-19 pandemic. This drop is shocking, as it accounts for almost 40% of China’s steel consumption. Even more concerning is those home sales declined again in October, showing how long and deep this slump will be. As the economy continues to slow down at an incredible rate and Covid-19 infections remain high, there is little hope for revived buying demand within this sector soon.

According to the World Steel Association, Chinese steel demand is forecasted to decrease by 4% in 2021. It will bring about a 2.3% diminishment of the global market due to increasing inflation and interest rates. 

However, 2023 could shape up differently as new infrastructure projects and a moderate recovery of the real estate industry may avert any additional shrinkage of steel consumption levels.
The China economist predicts that this year, the Chinese GDP will plummet to 3.3%, significantly below its 5.5% goal set by the government. Currently, global steel demand is declining due to central bank regulations on monetary policy; however, according to data from International Monetary Fund (IMF), in 2023, there should be a 4.4% growth of the nation’s economic rate. Moreover, Chinese advisors suggest reasonable targets for next year between 4.5% and 5.5%.

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