A modest rise in spot iron ore and future prices on Thursday as we head into the end of the trading year:
The 2022 forecasts are making the rounds – with Citigroup seeing $96, UBS $85 and Capital Economics the lowest at $70 (although I’m sure DLS has his sights lower than this). Its also good time to look back at iron ore’s trajectory throughout 2021, which was a wild ride to say the least:
This volatility is going to continue into 2022, according to some:
The volatility is set to persist into 2022 as a rebound in steel production this month falters early next year, with the usual seasonal output constraints tightening in the run-up to the Winter Olympics in February. Beyond that, strong headwinds are building: China is pushing ahead with cutting carbon emissions, steel output is expected to contract for a second year, while a debt-laden property sector is weighing on steel consumption and broader growth.
“Iron ore demand will broadly, gradually decline,” said CITIC Futures analyst Zeng Ning. “The property industry is rather weak, steel consumption is likely to contract and more mills will use scrap to reduce emissions.” The brokerage expects China’s steel output to fall by 50 million tonnes in 2022.
Among bright spots are potential fiscal stimulus in China, possible further easing in monetary policy, and more support for the property industry, while steel output could rebound when limits are removed after the Winter Olympics. The view at Macquarie is that iron ore could spike in the first half of next year because current steel production levels in China look “unsustainably low.” Output in November slumped to the smallest for the month since 2017.
Still, there are a “lot of uncertainties,” said Tomas Gutierrez, an analyst at Kallanish Commodities, who expects prices to trend below $US100 next year. The global growth outlook is mixed, while there could be inflationary pressures from energy prices and supply disruptions. The Omicron variant of the coronavirus, now detected in the country, is also a “dangerous variable considering China’s zero-tolerance approach to COVID,” he said from Shanghai.
Our next iron ore update will be in the New Year.