What’s the deal with iron ore? | ASX iron ore market summary

As one of Australia’s most important commodities, the iron ore market has seen a mix of trends in 2024 shaped by supply chain dynamics, Chinese demand, and global industrial activity, the combination of which has really given investors a wild ride. 

One of the most significant drivers (and which will continue to be) of the market remains China, the world’s largest consumer of iron ore, primarily for its steel production. China’s economy, particularly its property sector, is a major factor influencing iron ore demand. While steel production in China has remained relatively strong, there is growing uncertainty about the country’s real estate market and infrastructure investments, which could dampen future demand for iron ore. 

China Baowu, the world’s largest steel producer, has issued a stark warning of a “harsh winter” ahead, one that is expected to be “longer, colder, and more challenging than anticipated.” In August, China unexpectedly halted approvals for new steel plants, signaling the growing difficulties in the steel industry.

China’s government stimulus, particularly in infrastructure and construction sectors, does have the potential to boost demand for iron ore however. When the Chinese government injects funds into large-scale projects such as building roads, bridges, and housing, it drives up the need for steel, a key component in construction. Since iron ore is a primary raw material for steel production, any increase in construction activity leads to higher demand for iron ore. Further government stimulus in this manner is likely to continue, it just remains to be seen how hard they intend to go to prop up their economy.

On the supply side, new projects are still coming online. For example, Rio Tinto (ASX: RIO) plans to expand its Gudai-Darri mine in Australia, which will add significant production capacity by the end of 2024. The Company is also part of the group that are developing the high grade Simandou iron ore deposits in Guinea, West Africa. However, lower-grade producers such as Fortescue (ASX: FMG) and Mineral Resources (ASX: MIN) are facing an oversupply problem for a much less sought after product, particularly as more low-grade ore producers enter the market.

Meanwhile, India is emerging as a key player in the iron ore market, with growing domestic demand driven by steel production. However, logistical challenges and limited domestic supply have led Indian steel mills to explore importing iron ore, particularly from Australia and Brazil. This new demand source is expected to provide a buffer for global suppliers and help sustain prices into 2025.

Overall, the outlook for the iron ore market in the coming months hinges on a combination of Chinese demand, global supply chain disruptions, and industrial growth in key regions like India and Europe.