ANZ On Iron Ore: Weak Foundations

ANZ note that “the iron ore market remains on shaky ground. Demand in China still faces headwinds from a real estate downturn and constraints on steel industry emissions. Supply side issues are the only thing stopping prices from falling further.”

• “Beijing has stepped up fiscal policies to support economic growth, but we see new downside risks. There is a long way to go before the property sector will see any meaningful rebound. Environmental constraints are also likely to reduce China’s crude steel output, so we have lowered our steel production assumptions and now expect a second consecutive year of contraction.”
• “This is being offset by ongoing supply constraints. Growth remains elusive for Australian exports as miners battle extreme weather and labour issues. Similar issues are plaguing Brazil. When combined with smaller falls in exports from India and Ukraine, the iron ore market remains tight.”
• “Nevertheless, we expect the market to swing back into a small surplus in 2023. As such, we see limited upside in iron ore prices. We have lowered our end-of-year target to USD115/t and expect prices to trend lower in Q4 and into 2023 as the impact of the stimulus measures peter out and iron ore demand weakens.”