BHP and Fortescue shares rally but iron ore turnaround remains unlikely: ANZ

Iron ore majors BHP (ASX: BHP), Rio Tinto (ASX: RIO) and Fortescue (ASX: FMG) are off to a flying start on Monday, up between 3-5% after US stocks rallied on renewed pivot hopes and the US dollar eased from multi-year highs.

Still, the three iron ore heavyweights have mostly drifted lower in the past few months, in absence of any upside from iron ore prices, which have been mostly sitting around the mid US$90 a tonne level.

Analysts from ANZ Bank expect to see prices remain under pressure amid waning demand from China's infrastructure sector and 'no easy fix' for its property sector woes.

Troublesome fundamentals remain unchanged

ANZ Research says there is 'little likelihood' for a turnaround for iron ore prices as China's all-important housing industry fails to rebound from its ongoing debt-fuelled rut.

"Property indicators are showing little sign of recovery. New starts and buildings under construction have fallen nearly 50% year-on-year," ANZ analysts said in a note last Friday.

"The problem has trickled down to the demand side of the property sector, as local buyers creased mortgage payments due to delayed delivery of housing projects."

"Rising defaults among property developers are making buyers cautious about purchases . This has led to home prices falling as home sales contract sharply."

The property sector consumes approximately 37% of steel demand in China, according to the note. While the broader building and construction sector consumes approximately 60%.

"Property woes are outweighing positive signs in the broader infrastructure sector," they said.

"With the National Development and Reform Commissions pushing for crude steel production cuts in 2022 and environmental curbs in winter, we see demand risks for iron ore prices."

"We have subsequently cut our short-term (0-3 month) price target to US$85 a tonne ... We have also lowered our 12-month target to US$80," the analysts said.

Singapore iron ore futures (Source: TradingView)