Iron price 2023: where next as China continues to reopen?
The iron ore price is dictated primarily by Chinese demand, itself controlled by the strength of the property development sector.
Iron ore prices fell to a low of $81.50/tonne in early November but have since recovered to $124.50/tonne, spurred on by the Chinese reopening increasing demand, and cyclones and Q1 mining maintenance reducing supply from Australia.
China reopening: economic recovery, or pandemic surge?
It’s no secret that iron ore prices are dictated primarily by Chinese demand — with Refinitiv data shows that circa 60% of global iron ore exports are destined for the country. China spent most of 2022 imposing its strict ‘zero-covid’ lockdown policy on citizens, eventually sparking mass protests in dozens of major cities, and panic over the mortgage markets.
Making a political gambit, the Communist Party has now come close to fully reopening the country. PCR tests have been replaced by rapid tests, central quarantine facilities are no longer mandatory, citizens no longer have to show a negative test in public spaces, and interprovincial travel has finally been reallowed.
Cross-border travel is now at a three-year high as checkpoints at Hong Kong and Macau open fully, with 676,000 cross-border trips on 6 February alone. Meanwhile, Chinese group tours have reopened to 20 destinations worldwide.
However, this rapid mass reopening could simply be creating a medical disaster for China. Its domestic vaccines are far less effective against the prevalent Omicron subvariant than western-based mRNA shots, and healthcare systems are coming under intense pressure. While the socioeconomic and political costs of lockdown cycles are high, there is a reasonable chance that this new reopening is just the latest turn of the wheel before lockdowns are reimposed.
And unlike Australia, the US, or Europe, mass vaccination programs are not the way out; not only because they are relatively ineffective, but also because vaccine hesitancy is strong among elderly Chinese. Indeed, the Financial Times reported in early December that 90 million people were insufficiently protected prior to the reopening.
Iron price: Chinese property sector
China’s iron demand stems primarily from its property sector, which when including related services accounts for circa 30%-40% of the country’s GDP. The sector has been hit by waves of trouble; not only the pandemic, but also from fears that the Evergrande crisis could still generate significant contagion.
The government launched a 16-point plan in November to bring state support to the sector, which led to the nation’s banks pledging more than $160 billion in credit to developers. The key push was to ensure that unfinished construction projects which homebuyers were already paying mortgages on would be completed.
The Communist Party also indicated that it would offer below-market rate loans to firms through a relending facility, to buy bonds issued by property developers, further injecting liquidity into the sector. However, it appears this part of the plan is yet to materialise.
Encouragingly, Huatai Futures analysts argue that steel prices in China are ‘running strongly under the support of cost and positive expectations.’ But Chinese regulators have also warned that they may step in to stem any excessive iron ore price upwards speculation — indeed, the National Development and Reform Commission issued a third verbal warning as recently as this week.
And there’s a further complicating factor in 2023, in the form of the novel state-owned China Iron and Steel Association, designed to centralise iron ore purchases which could act as a partial buyer’s cartel in the event of an iron ore glut.
Meanwhile, ING strategist Ewa Manthey believes that ‘more stimulus and infrastructure spending could be unveiled at the National People’s Congress in March, which is likely to boost demand for commodities further.’
Ultimately, iron ore prices are subject to Chinese demand, and the country seems to both want to have its cake and eat it. But overall, propping up the property sector could likely support higher iron prices over 2023.
Take your position on over 13,000 local and international shares via CFDs or share trading – all at your fingertips on our award-winning platform.*
Winner of ‘Best Multi-Platform Provider’ at ADVFN International Finance Awards 2022
The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.
React to volatility on commodity markets
Trade commodity futures, as well as 27 commodity markets with no fixed expiries.
- Wide range of popular and niche metals, energies and softs
- Spreads from 0.3 pts on Spot Gold, 2 pts on Spot Silver and 2.8 pts on Oil
- View continuous charting, backdated for up to five years
See opportunity on a commodity?
Try a risk-free trade in your demo account, and see whether you’re onto something.
- Log in to your demo
- Try a risk-free trade
- See whether your hunch pays off
See opportunity on a commodity?
Don’t miss your chance. Upgrade to a live account to take advantage.
- Analyse and deal seamlessly on fast, intuitive charts
- Get spreads from just 0.3 points on Spot Gold
- See and react to breaking news in-platform
See opportunity on a commodity?
Don’t miss your chance. Log in to take your position.
Live prices on most popular markets
You might be interested in…
Find out what charges your trades could incur with our transparent fee structure.
Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.
Stay on top of upcoming market-moving events with our customisable economic calendar.