Iron Ore

Near-term iron ore prices to stay high but upside remains limited: Macquarie

Wed 14 Dec 22, 11:22am (AEST)
Open pits - View on iron ore quarry in Ukrain
Source: iStock

Key Points

  • Macquarie's commodity strategy team expect iron ore prices to average US$110 a tonne in 1Q23
  • Prices are forecast to stay high, averaging US$114 a tonne in 2023
  • The analysts said the recent iron ore rally has been boosted by sentiment, not fundamentals

Iron ore prices have recklessly rallied to a four-month high of around US$110 a tonne, contrary to the deteriorating macroeconomic backdrop and a steep downturn for global steel users.

Singapore iron ore futures rallied almost 50% from US$77.2 a tonne to US$112.4 between Monday, 31 October and Friday, 9 December.

Since the peak, prices are on a three-day losing streak, down -3.1% to US$108 a tonne. But that's perhaps an understandable pullback after such an outsized rally.

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

Is iron ore getting ahead of itself?

Macquarie's commodity strategy team recently upgraded their near-term iron ore outlook, with the view that prices will average US$110 in the first quarter of 2023 (up from US$90) and US$114 for the full year. Though, the analysts explained that the recent price rise was boosted by sentiment, not fundamentals.

"The benchmark iron-ore prices continued to rise reflecting improving market sentiment despite the lack of support from iron-ore demand and supply fundamentals," the analysts said in a note on Tuesday.

"In China, steel apparent demand stabilised last week, but steel margins remained negative for both integrated and EAF mills, and steel inventories edged higher."

All things considered, the analysts expect to see limited price upside in the near term.

Charts to watch

Chinese rebar and hot rolled coil margins have returned to positive territory. Since April, the return to profitability has been rather short-lived.

Rebar and HRC margins
Source: Macquarie Research

Macquarie forecasts multiple years of iron ore surpluses and does not expect prices to return to 2021 highs anytime soon.

Iron ore supply and demand outlook
Source: Macquarie Research

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Source: Macquarie Research | Table: Market Index


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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