China stimulus prompts Fitch Solution to revise iron-ore price outlook higher

Business intelligence firm Fitch Solutions Country Risk and Industry Research is revising its 2022 iron-ore price forecast upwards, from $90 per tonne to $120 per tonne. It has also revised its 2023 forecast, from $75 per tonne to $ 110 per tonne, as Chinese demand has once again started picking up.

The firm expects Chinese demand to also remain strong in 2022 and 2023 on the back of the government’s renewed stimulus of the infrastructure sector in the face of slowing economic growth.

Iron-ore prices reversed course in December 2021, embarking on an uptrend after collapsing in mid-2021. After embarking on a longstanding surge since mid-2020, and the exceptional rally in the first half of 2021, prices dropped sharply starting in July 2021. However, continued supply constraints and strengthening of Chinese demand led to prices reversing course from December 2021.

As prices reached $150 per tonne in February this year, the Chinese government announced a crackdown on speculative trading of iron-ore, resulting in iron-ore prices heading lower over negative investor sentiment, hovering at about $120 per tonne.

The National Development and Reform Commission (NDRC) announced that investigation teams would be sent to the commodity exchange and key ports to look into iron-ore inventories and trading in the spot and futures markets. The Dalian bourse then doubled transaction fees for some iron-ore futures contracts effective from February 16.

The firm is more positive towards Chinese demand for iron-ore following a number of developments. China seems to be looking at increasing its financial support to the economy in 2022, amid weakening economic growth prospects driven by real estate sector weakness and strict Covid-19-related lockdowns.

On the supply side, while production growth from Brazil and Australia has started to improve, and there is a loosening of tight supplies on the seaborne market. Beyond 2022, Fitch Solutions expects iron-ore prices to follow a multi-year downtrend. It maintains its view that iron-ore prices will consistently trend downwards, as cooling Chinese steel production growth and higher output from global producers will continue to loosen the market.

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