Main trends that will affect iron in 2023

How did iron ore perform in 2022?

During the first half of 2022, iron ore prices showed upward momentum.

Going into 2022, the key question was balancing economic growth with energy consumption and environmental goals in China, David Cachot, director of steel and raw materials research at Wood Mackenzie, told INN.

“The Chinese government’s focus on stabilizing economic growth while maintaining accommodative monetary policy translated into a skyrocketing steel output in the second quarter of 2022, while prices also found further support from supply disruptions caused because of the war in Ukraine and the low performance of exports from Brazil”, he explained.

But the second part of the year told a different story for iron ore, whose prices halved in October. Renewed concerns over COVID-19 restrictions in China, which accounts for around two-thirds of demand for seaborne iron ore, plus worries about the country’s real estate sector and cooling global economic growth, hurt the demand outlook for the base metal.

“Home sales in China declined again in October, reflecting the difficulties facing the housing market, as the slowdown in the economy and continued outbreaks of Covid-19 dampened demand for home purchases,” Ewa Manthey of ING. wrote in a note. The Asian nation’s real estate sector is responsible for about 40 percent of its steel consumption.

Iron ore prices recovered in the last two months of the year, ending 2022 above the US$100 mark.

“The faster easing of COVID-19 policy has boosted confidence and prices through the end of the year; however, we will have to wait a few quarters until 2023 to see evidence of demand improvements from the fading policy mix of government economic support and zero-COVID,” Cachot told INN.

What factors will drive the iron ore market in 2023?

As the new year begins, most analysts agree that iron ore is poised for another difficult year.

In terms of demand, Wood Mackenzie expects China’s steel consumption to remain subdued at a similar level year-over-year, with steel production and iron ore demand expected to remain somewhat stable in 2023.

“The Chinese property market could see a resurgence of buyers from mid-2023 as the economy is expected to pass peak infections,” Cachot said, reiterating that it will be a wait-and-see period.

Outside of China, much of the Asia Pacific region will avoid the current slowdown, while in Europe iron ore demand will continue to decline by 2 percent in 2023 as recession concerns weigh on steel production in the area, according to data from Wood Mackenzie.

Looking at the supply side of the picture, the supply of mined iron ore contracted in 2022, led by the Russia-Ukraine war, operational problems in Brazil, plus COVID-19 and weather disruptions.

“In 2023, Brazil and India will lead the supply increase, while Australian shipments will remain largely within range,” Cachot said. Australian producers have limited growth plans but continue to make progress on existing mine replacements in Western Australia.

ING’s Manthey echoed this sentiment, saying the near-term outlook appears bearish: in his view, lackluster demand from China points to a downward trend in base metal prices.

“We expect prices to drop to $85 in Q1 2023 and around $90 in Q2 and Q3,” he wrote. “Prices should be supported in the second half of 2023 due to expectations of a recovery in China and the easing of covid-19 restrictions, with prices topping US$95 in the fourth quarter.”

Similarly, panelists recently surveyed by FocusEconomy estimated prices will average $92.80 in Q4 2023 and $83.20 in Q4 2024.

“Prices are forecast to decline this year as economic momentum in most major economies wanes amid tighter monetary policy, despite a likely improvement in economic dynamics in China,” analysts at the company said. firm. “In addition, expected production growth in major producers in Australia and Brazil will likely affect prices further.”

For Cachot, China’s zero-COVID policy is being phased out fast, but economic disruptions will create a volatile environment for the next six months. “However, with expectations of an improving macroeconomic backdrop in China (particularly in the second half of 2023) and a relatively tight iron ore market in 2023, we maintain our 2023 iron ore price outlook at US$100 cfr. “, said.

For investors interested in the iron ore sector, one catalyst to watch is what’s happening in the markets outside of China.

“We expect to continue to see reduced steel production through early 2023, particularly in Europe, with ongoing weak demand from end-users forcing steelmakers to adapt by idling their blast furnace facilities,” Cachot said.

“While most of these European shutdowns are only planned to run until early this year, we expect producers to extend these shutdowns unless market conditions improve, as mentioned above.”