Iron Ore

3 trends that BHP, Rio Tinto and Fortescue investors should watch

Mon 10 Jul 23, 11:23am (AEST)
A train of ore carts extending into the horizon in an Australian setting
Source: iStock

Key Points

  • Iron ore prices are expected to fall in the second half of 2023 due to seasonal factors and a slowdown in Chinese steel production
  • Iron ore shipments from Australia, Brazil, and South Africa have been surging in recent months
  • China has been reducing its steel output by an average of 2-3% since 2020

Morgan Stanley says there is further downside for iron ore prices in the second half of 2023 and expects prices to ease to US$90 a tonne by the December quarter.

Singapore iron ore futures fell 1.25% last week to US$108 a tonne amid a seasonal slowdown in China’s steel production and surging iron ore shipments. 

Iron ore price chart
Iron ore 12-month price chart (Source: TradingView)

Iron ore stocks have been relatively range bound year-to-date as expectations of more stimulus from China has eased ongoing demand concerns. Fortescue (ASX: FMG) has outperformed its peers BHP (ASX: BHP) and Rio Tinto (ASX: RIO), up 6.6% year-to-date while the others are both down around 3% in 2023.

Iron ore
Fortescue, BHP and Rio Tinto price chart (Source: TradingView)

In this piece, we’ll recap some of the investment bank’s key trends and data points for the steelmaking ingredient.

Morgan Stanley: Iron Ore’s Seasonal Shifts

Seasonal trends 

Iron ore prices typically rise in the first half of the year due to China’s seasonal construction period and weather disruptions. Conversely, China’s steel production typically slows down in the second half, which applies downward pressure on iron ore. 

“While any headlines around China stimulus could provide temporary iron ore price support, we are seeing signs that the usual asymmetry could be returning once again,” said Morgan Stanley.

China’s blast furnace utilisation rates
China’s blast furnace utilisation rates (Source: Morgan Stanley)

Supply is surging

The four-week moving average of iron ore shipments from Australia, Brazil and South Africa – which account for more than 80% of the seaborne iron ore market – hit a record high in June. 

“There is typically a strong asymmetry to these shipments, with disruptions from heavy rains/cyclones in 1H before a 2H recovery - in the last two years, the four majors have shipped 54 mln tonnes more in 2H vs 1H,” noted the analysts.

“In particular, Brazil has rebounded strongly, up 60% since January where stronger rainfall disrupted shipments, with Vale shipments up 32% compared to levels early-May.”

Weekly Australia, Brazil, Russia and India iron ore shipments
Weekly Australia, Brazil, Russia and India iron ore shipments (Source: Morgan Stanley)

A gradual steel slowdown

China has been reducing its steel output by an average 2-3% since 2020, according to Morgan Stanley.

“For 2023, sources suggest output flat to down 2.5%. So far, China’s steel output is up 1% year-to-date, and to achieve a -0.5% reduction, output would need to average 10% below May levels for the remainder of the year,” the analysts said.

“China's steel output swings have historically been followed by similar directional moves in iron ore pricing.”

China’s monthly crude steel output
China’s monthly crude steel output (Source: Morgan Stanley)


Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

Get the latest news and insights direct to your inbox

Subscribe free