Iron ore prices fell 11.3% in February, down to a four-month low of US$116.5 a tonne, according prices on the Singapore futures exchange.
To be fair, iron ore was coming off a massive hot streak, where prices rallied 40% from May to December 2023. However, much of this strength was driven by expectations of a robust Chinese policy response to revive its slowing economy, which failed to materialise.
February revealed some troubling Chinese demand and supply data. Typically, the period following the week-long Lunar New Year holiday (mid-Feb) is expected to see heightened demand as steel mills restock inventories. Demand failed to meet expectations as some companies decided to adopt a wait-and-see strategy, limiting their purchases of raw materials.
High iron ore prices also chipped away at the margins of end users – primarily, steel mills. Many steelmakers were producing at little to no profit, which prompted mills to delay production and idle blast furnaces. The lack of demand was reflected in Chinese port inventories, which hit an 11-month high.
Iron ore prices have slumped 17% in the first two months of the year, marking the worst two-month stretch since April-May 2023 (-21%).
March has historically been the fourth worst-performing month of the year for iron ore.
Since 2008, iron ore has averaged a 3.0% decline in March and positive 53% of the time. The only months that average worse are August (-4.9%), May (-4.9%) and September (-3.1%).
If we look at the past 10 years, prices in March have averaged a 2.9% drop and positive 60% of the time. March data is rather positive over the past five years, up an average of 2.4% and positive 100% of the time.
As always, past performance is not an indicator of future results and February was a prime example of that. February has historically been one of the strongest months for iron ore, up an average of 3.4% and positive 60% of the time.
More stimulus: China announced some modest stimulus measures in recent months. These include a 25 bp cut to its five-year loan prime rate to help boost demand for mortgages and infrastructure loans as well as a provision of 350 billion yuan (US$49 billion) to banks for additional lending. The stimulus has done little to boost economic activity. Analysts have suggested stronger stimulus but such actions have not yet been taken.
Data: China's manufacturing activity likely contracted for a fifth consecutive month in February, according to Reuters. The official PMI is forecast to ease to 49.1 in February from 49.2 in January. The 50-point mark separates growth from contraction.
Housing market: China's home sales data continued to slump in February, down 60% year-on-year following a 34.2% decline in January. The decline is exaggerated due to a seasonal sales drought during Chinese New Year.
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