The iron ore complex saw a big move higher on Monday with spot prices up more than 6% on a recent pledge by the Chinese government to “focus on economic stability”, giving a big boost to the demand outlook.
Meanwhile, Westpac are seeing their forecasts for iron ore moving down again:
Our forecasts have iron ore drifting down to US$75/t by end 2022. You could put together a stronger argument for iron ore based on demand finding a base, PBoC stimulus backing up the administration’s call for an expansion of domestic demand including “pushing forward social housing construction”. In addition, ore supply has been trimmed with Vale, Rio, Anglo and Mineral Resources all reducing guidance in recent weeks.
However, we feel it is to too early to call a base with port inventories building rapidly and prices holding above cost. While we think most of the price correction has already occurred there is still significant downside risk before there is meaningful cost support/supply discipline from the majors. The iron ore port inventories build through recent weeks is a bearish signal and they are expected to continue to lift over the next 2-3 months as pig iron production is not likely to pick up until after the Winter Olympics.
