Where is the iron ore price headed?

The price of iron ore rose above $120 per tonne. But some experts think the commodity may have seen the best side of the recovery and possibly even lower again.

In fact, prices are up about 50% compared to a few months ago.

What caused the price of iron ore to rise?
There may be several different factors that come together to help iron heal.

According to the Australian Financial Review report, some of the gain may have been due to increased steel production in China and the possible expectation of more Chinese stimulus to aid growth, which could help stimulate the economy.

However, the rise in the price of iron may have been supported by the heavy rain in Brazil. Why is this important? It caused Vale, one of the world's largest iron ore producers, and others to cease production. This affects short-term supply.

But the heavy rains would not last forever. It is reported that the weather is loosening in Brazil.

Quoting Robert Rennie, senior economist at Westpac Banking Corp (ASX: WBC), AFR said:

You can understand why the market's short-term spot prices are rising because there is so much risk, but as we move into the first quarter and better understand the stimulus in post-Olympics China, we see prices easing.

I expect prices to peak in the coming weeks and start to soften assuming there are no other major weather events.

Westpac economist does not think Chinese steel production will bounce back quickly, according to AFR.

The upcoming Winter Olympics are believed to be a major reason why China has imposed emissions restrictions and forced some steel mills to cut production. Mr. Rennie thinks the reductions in steel production will continue until the Olympics.

Mr. Rennie also said:

Also, I am not as optimistic as the market that we will see a sudden recovery in Chinese construction and steel demand. I think lows are a story for this year and beyond.

Where is the iron ore price headed?
Each analyst has their own thoughts on where the iron ore price will go. According to AFR, Westpac projects an iron ore price of US$88 per tonne by mid-2022 and could go to US$75 per tonne by the end of this year.

The change in iron ore price could have a major impact on the profits of Australia's largest miners, including BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG).

But there are others who think that iron ore can continue to perform well.

For example, Morgan Stanley thinks that a return to production in March 2022 could help push prices a little higher.

Citing the AFR, Morgan Stanley commodity strategist Marius van Straaten said that even if China does not allow full-year steel production to grow, his broker has a positive outlook for the next few months:

Even under such non-growth constraint, we could see a potential 25 percent increase in steel production rates over October-November levels by the second quarter of 2022.

However, by the fourth quarter, Morgan Stanley estimates that the price of iron ore may soon drop to US$85 per tonne by the fourth quarter of the year.

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