Fitch Solutions significantly revised its iron ore price forecasts for the next two years, citing the Chinese government's renewed economic incentives for the infrastructure sector.
The research arm of the global rating agency raised its iron ore price forecast for 2022 from US$90 to US$120/tonne per ton, and from US$75/tonne to US$110/tonne for 2023.
“Chinese demand has started to recover once again and will remain strong in 2022-2023 with the government's renewed stimulus for the infrastructure sector in the face of slowing economic growth,” Fitch said.
On the supply side, we do not expect a significant increase in iron ore supply from major producers, who will focus on value over volume, in 2022, adding to the high supply risks on weather issues and ongoing COVID-19 operational disruptions.
Fitch was the latest financial institution to raise its iron ore price forecasts for 2022, joining JP Morgan and Macquarie this month who also raised their expectations.
After hitting a record $230/tonne in May, iron ore price quickly dropped below $90/tonne in November, but then quickly rose to around $150/tonne again this month. It has softened to $136/ton in recent days.
Fitch said that the recent price softness in iron ore is due to the Chinese government's pressure on speculative trade in steelmaking commodities, but that the weakness will be temporary due to continued supply constraints and renewed demand.
“On the demand side, after a series of developments, we are now returning more positively to China's iron ore demand,” Fitch said.
First and foremost, China appears to be looking to ramp up its financial support to the economy in 2022 amid weakening economic growth prospects driven by property sector weakness and strict COVID-19-related lockdowns.
The Chinese government announced on January 25 that Beijing will set a reasonable annual quota for local government bonds in 2022 to boost infrastructure investment, which will be very supportive for iron ore demand and prices.
However, Fitch maintained its long-term bearish outlook for iron ore, estimating a multi-year downtrend from 2022 to 2031 to US$50/tonne.
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