The iron ore market is poised to soften from current levels for two key reasons, both involving China.
Earlier this week, iron ore prices jumped to $116 per tonne, hitting a 7-week high. The rally was largely based on import data interpreted as China's rising iron ore demand.
In November, Asia's largest iron ore imports exceeded 100 mt, up more than 7 percent year on year. This is the highest level in the last 13 months. The increase in demand pushed the iron ore market up about 8% to $110/ton last month.
China has resolutely moved from investment-led growth to consumption-led growth. Fixed asset investment is slowing down. Steel demand is certain to be affected as construction activity slows.
The signs look ominous. Environmental concerns have forced the Chinese government to limit excess steel production. At the same time, iron ore stocks in China have been rising, expanding by a fifth since the beginning of this year.
The slowdown in construction activity in China appears to be worrisome. Financing construction projects has become more difficult for developers.
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