Can the iron ore price rally continue in 2024?

Last November and December was a euphoric time for iron ore and resource investors. Prices for the commodity briefly surpassed US$140 a tonne and majors BHP (ASX: BHP) and Fortescue (ASX: FMG) both managed to score fresh all-time highs.

The strength behind iron ore prices has been well-documented by both seasonality trends and analyst research. Here's some of our data and analyst coverage from last year:

• Why December is a bullish month for iron ore

• Why November is a bullish time for BHP, Rio Tinto and Fortescue investors

• Citi says iron ore price could hit US$140 a tonne by early 2024

But what happens after such a V-shaped rally?

Iron ore's seasonal performance

The below data refers to benchmark 62% iron ore futures on the Singapore exchange. The contract started trading in November 2008 – So there's only 15 years of historic data available.

The below data refers to iron ore's historic performance in the month of January.

In the past fifteen years:

• Average gain of 1.9%

• Median gain of 2.6%

• Positive 64% of the time

In the past ten years:

• Average gain of 1.1%

• Median gain of 1.3%

• Positive 50% of the time

In the past five years:

• Average gain of 7.9%

• Median gain of 10.5%

• Positive 80% of the time

Source: Market Index

How does iron ore perform after a 'Big December'

There's always a bit of discomfort in trying to buy into things that have rallied in a rather vertical fashion. So how does iron ore perform after an outsized December rally?

Iron ore has rallied more than 10% in December on seven occasions since 2008. Here's how it performed in the following January.

Citi's US$140 a tonne target

Last November, Citi analysts upgraded their 3-month iron ore forecast to US$140 a tonne from US$120 a tonne.

“We now expect in our base cases that China will likely increasingly push towards fiscal expansion to engineer investment-led growth, and this time with a focus on urban village redevelopment/affordable housing to support overall property market related activity in 2024," the analysts said.

"Any dip in iron ore from here through to at least Chinese New Year could represent a buying opportunity."

A pullback is taking place

Iron ore is on track to mark a four day losing streak, down around 3.6% to US$137 a tonne on Tuesday. Bloomberg attributes the weakness to the following factors:

• Iron ore supplies are creeping up amid muted demand, with daily shipments from Brazil during December touching 2 million tons, up from 1.5 million tons the year before

• Portside stockpiles rose for the seventh straight week, an indicator of overall softer demand and restocking efforts

• Daily blast furnace rates in Tangshan, China's steelmaking hub, sank 14% in late December, compared to mid-December, to its lowest on record since Bloomberg began tracking the data in 2019

Putting it all together

Seasonality trends suggest that a) January remains a bullish month for iron ore prices and b) momentum in December has the tendency to continue into January.

As the above points from Bloomberg suggest – The fundamentals aren't too hot at the moment. Some other data points to consider include:

• China's manufacturing PMI accelerated in December, up to 50.8 from 50.7 in November. This marks the fastest level of expansion in seven months

• New home prices in 70 major cities fell by 0.4% month-on-month in November

There's also the prospect of more easing, with the PBOC Head of Monetary Policy noting that they may use open market operations, medium-term lending facilities and reserve requirements among other monetary policy tools to provide “strong” support for reasonable growth in credit.