Iron ore set on ascendant path in 2024

Iron ore prices experienced a robust increase in 2023, averaging above $100 per ton throughout the 12 months. The average price for a ton with 62% iron closed December at $140.5, marking a 19.73% increase compared to December 2022, when it ended the year at $117.35 per ton.

The behavior throughout 2023 was not uniform. The price averaged above $120 per ton in the first three months. It reached the monthly minimum average in May at $105.13 per ton and remained relatively stable in the following months.

The momentum that drove the annual average price occurred from September, when it returned to an average above $120 per ton, eventually surpassing $130 in the last two months of 2023. The average price in December was $136.37 per ton, a 4.6% increase from November’s $130.36.

Daniel Sasson, an analyst at Itaú BBA, describes 2023 as a “curious” year for iron ore. With an annual average price of $120 per ton, the commodity maintained the same level as 2022. “Although the average remained the same, the path was not straight,” he notes. At the beginning of the year, there was a strong expectation of demand recovery and price increases with the easing of China’s zero-COVID policy, explaining the behavior of average prices in the first quarter. However, the country’s reopening, the world’s largest ore consumer, had more impact on consumption recovery than industrial activity.

According to Sasson, China is expected to deliver GDP growth of more than 5% in 2023, driven by consumption. On the other hand, there was continued weakness in the Chinese real estate sector, which has been struggling since September 2021 with the collapse of Evergrande. Despite government stimulus measures, this industry delivered weak data regarding square meters started or sold, contributing little to increased steel production. In 2023, the infrastructure, automotive, and machinery sectors drove Chinese steel consumption, with steel production expected to grow by 2% in China for the year.

Therefore, ore demand was sustained by these sectors, supporting “healthy” prices above $130 per ton in late December, starting 2024 at higher-than-expected levels. “Many believe that the worst may be over for the Chinese real estate sector, so the slowdown should be less, which could help sustain the demand for ore. However, there are still some concerns, also with the global economy,” he cautions.

The analyst points out that, so far, one of China’s escape valves against the weakness in the property sector has been exporting more steel products. In 2023, the volume sold abroad is expected to reach 100 million tons, equivalent to three times Brazil’s annual production. “This poses a risk that more countries will raise import and anti-dumping tariffs, putting the brakes on what was an important escape valve for Chinese steel production in 2023,” Sasson observes.

On the supply side of ore, Sasson notes that the four major players – Vale, BHP, Rio Tinto, and Fortescue – announced production estimates virtually unchanged from 2023. “In a scenario of limited supply and still reasonable demand, prices may stay above $100 per ton in 2024,” he assesses. Itaú BBA projects an average price of $110 per ton in 2024.

Source: Valor Econômico

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