The start of China’s peak construction season was supposed to finally boost demand for iron ore, which has endured a tempestuous year with prices now trading near 2022 lows. But the bounce hasn’t happened, with traders now puzzling over what could be the next catalyst for a price rally in the crucial steelmaking material.
China’s usual boom period for infrastructure construction and steel-related demand in September and October has so far offered no reprieve for investors in the iron ore market, which just notched its longest streak of weekly losses on record. The economy continues to contend with severe housing slump and virus-related lockdowns.
Bets that fresh financing for the property sector -- which accounts for a third of steel consumption -- will aid demand recovery during the peak season have since unraveled, with the 100 biggest real estate developers seeing new-home sales in September plunge by a quarter. That’s even as financial regulators rush to stem the liquidity crisis, telling the nation’s six largest banks to offer up at least 600 billion yuan ($85 billion) of net financing.
While steel mills typically restock iron ore supplies before the National Day holidays at the start of October, their profit margins are also languishing and they’re limiting purchases to a needs-only basis. Meanwhile, September saw China’s purchasing managers’ index rising only marginally to 46.6 -- a reading below 50 suggests contraction in the steel industry.
“It’s certainly the worst autumn since 2015,” Tomas Gutierrez, analyst at Kallanish Commodities, said in emailed comments. “Real estate is far too big a part of the whole economy and no other sector can expand rapidly enough to make up for lost construction steel demand.”
Gutierrez was referring to the period seven years ago that also saw a sharp slowdown in China’s property and factory activity. Added to that, global iron ore supplies were expanding rapidly, and futures traded as low as $40 a ton.
