Fitch revises short-term iron-ore price outlook higher on China stimulus

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.

However, as prices reached $150/t 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/t.

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.

"While we expect iron-ore prices to see some weakness in the coming days from spot levels over the Chinese crackdown, we believe this will only be temporary. We believe that prices will receive support from supply constraints and renewed Chinese demand strength in 2022, such that the annual average iron-ore price for 2022 and 2023 will remain above pre-Covid-19 levels," Fitch Solutions says.