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Evening Wrap: ASX 200 slides on broad-based falls, finishes at week's low as Santa rally fades
Fri 06 Dec 24, 5:45pm (AEDT)
Data Insights
Is it time to bet on iron ore miners like Fortescue, BHP and Rio Tinto?
By
Kerry Sun
Fri 08 Nov 24, 11:35am (AEDT)
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Key Points
- Iron ore historically shows strong seasonal gains between November and February, averaging 19.2% since 2014, with December being particularly robust showing positive returns for ten consecutive years
- Over the same time period, Fortescue shares have averaged a 25.5% return
- There are several factors that may introduce significant volatility over the coming days and weeks, including China's NPC meeting and Trump's proposed tariffs on Chinese imports
The market is fast approaching what is typically the most bullish period for iron ore prices. Since 2014, iron ore has averaged a gain of 19.2% in the four month stretch between November and February.
While past performance is not a reliable indicator of future returns, the end of year seasonal rally for iron ore has been rather consistent for the past six years. The upward move for iron ore has also driven relatively consistent returns for household names like Fortescue (ASX: FMG), BHP (ASX: BHP) and Rio Tinto (ASX: RIO).
Iron ore price seasonality
The below data observes the average, median and the percentage of months that are positive between July 2014 and November 2024. The iron ore price that I'm quoting here are Singapore iron ore futures.
| Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
Average | 1.8% | 3.5% | -4.5% | 3.4% | -2.4% | 3.0% | 2.8% | -4.8% | -4.2% | -2.8% | 4.1% | 9.7% |
Median | -0.5% | 4.4% | -4.9% | 4.2% | -1.1% | 3.9% | 1.6% | -2.8% | -3.7% | -4.4% | 5.4% | 7.0% |
% Positive | 40% | 70% | 40% | 70% | 40% | 60% | 55% | 36% | 36% | 36% | 64% | 100% |
Source: Market Index, TradingView
The seasonal strength is underpinned by China's need to stock up on iron ore between November and February as well as June and July, in anticipation of Lunar New Year and peak construction periods, which take place in September and October.
Taking a closer look at each month:
November – This is a relatively mixed month for iron ore. The 4.1% average has been supercharged by the 29.3% surge in 2022 (when iron ore prices finally bottomed after the Evergrande crisis). If you exclude 2022, the average for November falls to 1.6%. That said, November still has a relatively high % positive rate of 64%.
December – Iron ore has never had a down December in the past ten years but it crawled over the finish line in December 2014, up just 0.1%. This month has posted a fair share of double digit percentage gains, including 2020 (+23.7%), 2021 (+18.3%), 2023 (+16.4%) and 2018 (+10.5%).
Jan-Feb – The performance for these two months tends to be a little more choppy, with January only positive 40% of the time. This year serves as a reminder about following historical data, with iron ore prices falling 6.5% in January and down another 11.3% in February.
Fortescue seasonality
The below data observes the average, median and the percentage of months that are positive between July 2014 and November 2024. These are price returns and excludes dividends.
| Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
Average | 6.3% | 1.8% | 4.7% | 6.3% | -0.3% | 2.6% | 4.8% | -0.9% | -0.2% | 0.6% | 8.5% | 8.9% |
Median | 3.4% | -0.4% | 5.1% | 4.7% | -5.0% | 4.1% | 2.1% | -0.4% | 0.2% | 1.6% | 6.1% | 6.1% |
% Positive | 78% | 44% | 56% | 78% | 33% | 56% | 50% | 50% | 50% | 60% | 70% | 89% |
Source: Market Index, TradingView
The November to January period has a very strong % positive rate of more than 70%, while February tends to deliver mixed returns. It is worth noting that the past five years (2019-2023) have demonstrated even stronger returns, up an average 14.6% and positive 100% of the time.
Where are we now?
Several key factors currently influence iron ore seasonality. Most immediately, China's 14th National People's Congress (NPC) meeting, running November 4-8, could significantly impact demand.
Chinese officials have been taking aggressive steps to achieve their 5% GDP growth target amid economic headwinds. Their September 2024 stimulus package included interest rate reductions, mortgage rate adjustments, and increased bank liquidity. However, markets remain skeptical about these measures' ability to drive broad economic recovery.
Adding to the uncertainty, Trump's victory has triggered a sharp rise in Treasury yields and the US dollar, driven by concerns over budget deficits and inflationary policies. This stronger dollar environment typically creates headwinds for commodity markets.
Further complicating matters, Trump's proposed 60%+ tariffs on Chinese imports – far exceeding the 7.5-25% rates from his first term – could introduce significant volatility to global trade and China's economic outlook.
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