Iron Ore

Chinese lockdowns paint a bleak picture for iron ore and steel prices says ANZ and S&P Global

Tue 06 Sep 22, 3:09pm (AEST)
Iron ore conveyor belt
Source: iStock

Key Points

  • Iron ore prices are trading around 10-month lows of US$97.55 a tonne
  • The GDP share of Chinese cities in full or partial lockdown jumped to 35% of national GDP.
  • The outlook for iron ore and steel prices remain 'bleak' according to S&P Global and ANZ

Iron ore prices are dwindling around a 10-month low as another round of lockdowns in China raises concerns over an already weak demand outlook for the steel-making ingredient. 

Singapore iron ore futures are trading at US$97.55 a tonne on Tuesday, down -11% in the last month and -20% year-to-date.

The Chinese government remains committed to its zero-tolerance stance on covid, with the GDP share of cities in full or partial lockdowns jumping to 35% of national GDP, according to Goldman Sachs. This is the highest percentage since early 2021.

Property and steel sectors: Still distressed

China's beleaguered property sector reported a -31% decline in new home sales in August and down -13% month-on-month.

Steel market sources told S&P Global that they thought the property market's debt crunch might have stopped worsening as the government stepped up support for both developers and home buyers, but new home sales and starts are still "a long way from recovery".

"Most major steel mills actually have been fully booked for September delivery, and steel market inventories are currently low," a mill source said.

"However, steel prices have remained on a downward trend recently, indicating a very bleak outlook held by traders and end-users towards steel demand."

Steel traders said overall demand in September and October is unlikely to be strong, with the still distressed property sector and resurgence of covid to blame.

Stimulus: Easier said than done

China said it will accelerate the rollout of new stimulus measures in the third quarter, according to Bloomberg.

Although, it seems like a last-minute headline considering there's just three weeks left of the third quarter.

"Hopes of that stimulus package at least in the short-term are clearly dying quite quickly," said senior commodity strategist Daniel Hynes in a Bloomberg interview.

"We will eventually see a rebound, it's just when that occurs."

"We don't know when that zero covid strategy will eventually be eased in China and not until then, I don't think we're going to see an effective or strong rebound in that construction sector that could potentially help support demand and raise prices again.

China's infrastructure and residential property construction sectors typically accounts for 50-60% of domestic steel consumption.

Singapore iron ore futures price chart
Singapore iron ore futures (Source: TradingView)

 

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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.

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