Iron prices started off strong at the beginning of 2024, but have since dropped steeply to two-year lows. Market watchers are looking for a turnaround in China’s economy.
Iron is one of the world’s most important industrial metals, and is primarily used in the production of ferrous metals including steel, cast iron, as well as alloys of iron with other metals.
As the world’s largest producer and exporter of stainless steel, China is naturally the world’s largest consumer of iron ore. While the Asian nation may be the third largest iron-producing country, its domestic supply is not enough to meet demand. Hence, the country imports over 70 percent of global seaborne iron ore.
This makes the iron market highly sensitive to fluctuations in the health of China’s economy, in particular its property sector. China’s ongoing property sector woes in recent years have weighed down the steel and iron ore markets.
How did iron ore perform in 2024?
Iron ore spot prices are assessed based on iron ore fines containing 62 percent iron, an ideal standard specification for raw material in the production of high-quality steel.
Iron ore prices hit US$144 per metric ton (MT) in January, but then fell as low as US$91.28 per MT in September. Overall this year, the iron ore price has shrunk by 27 percent.
According to the World Steel Association, during the first ten months of 2024, China’s production of crude steel declined by 3 percent year-on-year (y-o-y).
During this same period, Project Blue notes that China’s pig iron production dropped by 4 percent. “This is mostly due to a weak construction and persistent depressed property market. As for evidence, China’s rebar production (mostly exposed to construction) dropped 14.3 percent y-o-y during the January-October period,” said Sardain.
Globally steel production has fallen by 1.6 percent with four other top steel-producing countries join China in posting declining steel production over the same period, including Japan (-3.7 percent), the United States (-1.9 percent), Russia (-6.8 percent) and South Korea (-5.1 percent). Significant increases in steel production in India (5.6 percent), and Brazil (6 percent); however, both nations have sufficient domestic iron ore and so do not place demand on the global seaborne market.
Iron ore prices have been buoyed in 2024 on China’s strong iron ore imports. Project Blue reports that the country’s iron ore imports were up 4.9 percent y-o-y for the first 10 months of 2024. Domestically, the country’s iron ore production increased by 2.8 percent y-o-y, based on run-of-mine with an undisclosed iron content.
On the supply side, Project Blue sees iron ore shipments increasing slightly in 2024, primarily from Vale (NYSE:VALE) gradual recovery from the sharp dive in production following its Brumadinho 2019 accident. Meanwhile BHP’s (ASX:BHP,NYSE:BHP,LSE:BHP) production is also slightly increasing as itws new South Flank mine reaches full capacity. Both Rio Tinto (ASX:RIO,NYSE:RIO,LSE:RIO) and Fortescue’s (ASX:FMG) production will be flat for the year.
In late September, the Chinese government announced new stimulus measures that were on the way to juice its economy, namely the housing sector. Following the news, iron ore prices rallied by more than 21 percent to a fourth quarter high of US$112.39 per MT on October 7. However, by November 1 the excitement had worn off with prices falling back to US$102 per MT on persistent weakness in demand and rising inventory levels.
Heading into the last few weeks of the year, iron ore prices are hovering around US$105 per MT. The expectation of worsening trade tensions with the United States following the election of President Donald Trump are also weighing down the outlook for Chinese iron demand.
“Another factor has been the subdued macro environment in China, with markets waiting for effective stimulus from the Chinese government to boost domestic consumption and revive the property market. Those expectations have been consistently disappointed in 2024 with most measures taken by the Chinese government having been using the monetary policy (lower interest rates). Fiscal measures would have been more effective,” explained Project Blue’s Sardain.
Higher than seasonally normal port inventories are also weighing on prices. “With higher iron ore imports and a lower implied demand, port stocks increased significantly in 2024, reaching 150.7 Mt mid-December, a 31 percent y-o-y increase,” he added.
What trends will move the iron ore market in 2025?
Investors interested in the iron market should continue to keep an eye on market trends coming out of China, specifically concerning inventory levels at its ports, economic stimulus measures, tariff measures coming out of the United States, and ongoing challenges to its property sector. Global iron ore production activity and steel demand out of key ex-China markets are also key factors to watch in 2025.
In the first quarter of 2025, Wood Mackenzie expects to see continued support for iron ore prices as mill restocking activity is expected to be higher than is typical for this time of year. Between November and February, construction in China hits its slow season and steel mills close down for maintenance and environmental regulations slow activity.
“The off-peak season will impact hot metal production, but expectations for winter stockpiling are likely to support iron ore prices. Additionally, seasonal environmental restrictions affecting steel-making hubs will benefit steel prices and tend to boost raw materials prices as well,” explained Cachot. “During this period, it is common for raw materials to outperform steel product prices.”
On the supply side, global iron ore mine production and exports are also seasonally weaker in the first quarter of the year. That’s because Australia’s cyclone season can disrupt port operations, and heavy rains in Brazil can lead to mining and rail disruptions. Australia and Brazil are the world’s top two iron producing nations, and their combined usable ore output represents 56 percent of global production.
“An increase in mill restocking activity, combined with the seasonally weaker iron ore supply in the first quarter, will likely reduce iron ore inventory. This trend is expected to support iron ore prices through January and into the Lunar New Year holiday,” said Cachot. “However, ample inventories at Chinese ports will limit such restocking efforts and gains in iron ore prices.”
China’s property sector a must watch
Moving further into the year, analysts are advising that trade protectionism and further economic stimulus measures are important to watch in 2025. China’s property sector woes will continue to weigh heavily on iron ore demand unless the government can provide enough financial incentives to turn its economy around.
“China’s housing market continues to struggle, and government stimulus has yet to significantly impact construction material markets. However, there is some optimism for further measures in the coming months to support prices,” Wood Mackenzie’s Cachot said. “Our base case view is that ongoing concerns about the Chinese property market and an oversupplied market will limit the potential for price increases.”
Project Blue’s base case is that China’s steel production will be lower in 2025, primarily due to lower steel exports. “We forecast that China could export 10Mt less steel in 2025 than in 2024, across markets. Our base case also expects a lower domestic steel production, in line with weaker macroeconomics,” Sardain said. “However, some mitigation could come from a stabilisation of the property market, that we expect to take place in H1 2025 with some mild recovery in H2 2025.”
Potential US tariffs could further disrupt iron ore prices
Traditionally, iron ore prices are strong in the second quarter as China’s construction season is in full swing. Although they mostly softened during the summer, the price of iron ore typically rises again in the months of September and October before sliding again in the winter months.
“However, this pattern could be very different in 2025 depending on the macro developments, the geopolitics and the implications of the US elections,” explained Sardain. His firm believes Trump’s proposed tariffs could bring about a 0.5 percent cut to China’s GDP growth in 2025, which would drag down steel production resulting in lower iron ore demand.
Ex-China steel demand
Outside of China, steel production may also continue to show signs of softening, especially in other parts of East Asia and Europe.
“Production shutdowns, delays in decarbonisation projects, geopolitical uncertainties, and bottom prices would lead to long term structural loss to the EU steel industry,” said Wood Mackenzie’s Cachot. “The outlook for Japan and South Korea remains subdued due to the consumption slowdown amid ongoing macroeconomic challenges. Speciality steel exports are expected to support production over the next decade.”
To meet net-zero climate targets, the European steel industry is working to decarbonize its production processes. However, the sector is facing a number of challenges including rising energy prices, growing exports from China’s excess capacity and sliding domestic demand as economies in the region falter.
The downturn in steel demand is hitting Germany’s steel sector particularly hard. The nation is the top European steel producer and ranks in the top ten globally. According to Worldsteel, Germany’s domestic steel demand is expected to grow by a little less than 6 percent in 2025, after falling by 7 percent in the previous year.
Global iron ore production
Trouble is also brewing for iron ore prices on the supply side for 2025 and beyond, as new mines and planned expansions are expected to increase global iron ore production.
“On the supply side, we expect higher seaborne supply from the large miners, primarily from Vale and to a lesser extent from BHP,” said Sardain. “New greenfield project Simandou in Guinea could start production at the end of 2025 but should not have a major impact on the iron ore market in 2025. However, it could negatively impact the market sentiment if shipments start at the end of the year.” The Project Blue team also sees high port stocks maintaining pressure on iron ore prices.
By the end of the decade, market intelligence firm BigMint is predicting an iron ore supply surplus as new mines come online. One of those new supply sources is the high-grade Simandou in West Africa, considered the largest unmined iron ore deposit, which is anticipated to start operating in late 2025 or early 2026. Africa’s seaborne iron ore exports may in turn more than triple by 2028 to 2030. With new mines also on the horizon in Australia and Brazil, the global maritime ore supply market is headed toward a surplus by 2030.
Iron ore price forecast for 2025
Wood Mackenzie’s iron ore price forecast on a 62 percent Fe fines basis, CFR China, is pegged at US$99 for 2025 and US$95 for 2026. The firm also expects China’s steel demand to decline at a compound annual growth rate of negative 1.2 percent by 2034, dragged down by its shrinking construction sector.
For its part, BMI also sees weak demand out of China and is expecting iron ore prices to average US$100 per MT in 2025 and to decline to traded at an average of US$78 per MT by 2033.
Project Blue’s base case predicts iron ore prices dropping below US$100 in 2025, driven by lower
lower steel/pig iron production, high port stocks, steady seaborne shipments and a weakened Chinese and global macro environment. If China can bring in effective fiscal measures and right its property market ship, the firm sees iron prices rising as high as US$120 to US$130 per MT, tempered by high port stocks. However, if such measures do not materialize, the property market continues to fall and the newly elected US administration imposes high tariffs, there is the risk that iron ore prices could fall to a range of US$75 to US$80 per MT.
Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.