The price of iron ore has gradually wormed upwards from a low point of US$84.50 per tonne in November. It now trades at US$132.50 per tonne.
A range of factors have plagued iron ore markets these past 12 months, and the calamity continues to this date.
Most recently, renewed fears of COVID-19 in China have sparked widespread lockdowns, causing prices to spiral downwards to 2-week lows on the softening demand outlook.
The price of iron ore and the benchmark S&P/ASX 200 Index‘s (ASX: XJO) return this year to date are plotted below.
Despite the recent pullback, research corroborates that iron ore prices might remain buoyant for the remainder of 2022.
A research note by Wood Mackenzie reckons there’s room for it to head higher still.
“Beijing’s balancing act between human safety and economic stability remains the key short term driver of iron ore,” it said.
“Our H2 [iron ore] forecast is $130/t, marginally below a projected $140/t for H1,” it added.
Meanwhile, Fitch Solutions revised its forecasts in May and now projects a period of higher prices over the coming 12–18 months.
Chinese demand again appears to be central to the debate. Fitch Solutions said:
We are revising upwards our iron ore price forecast for 2022 and 2023 from US$90/tonne and US$75/tonne to US$120/tonne and US$110/tonne respectively, as prices reversed course in December 2021 and are embarking on an uptrend after collapsing in mid-2021.
Chinese demand has once again started picking up and will remain strong in 2022-2023, with the government’s renewed stimulus towards the infrastructure sector in the face of slowing economic growth.
We believe that prices will receive support from supply constraints and renewed Chinese demand strength in 2022, such that the annual average iron-ore price for 2022 and 2023 will remain above pre-Covid-19 levels
That sentiment is echoed by Randal Jenneke, head of Australian Equity at T.Rowe Price. In a recent note, Jenneke said that “more fiscal stimulus to support growth in China could help to support the price of iron ore”.
As it goes, there appears to be good support behind iron ore remaining top-heavy into the remainder of 2022.
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