Betting on a rebound in Chinese demand? Iron ore sees its largest two-day increase in two years
Morgan Stanley expects the spot price of iron ore to reach $120 per ton in the third quarter as Chinese iron ore prices rise. With stable Chinese economic data, a rebound in the stock market, and optimism about the global economic outlook, the manufacturing PMI index in China is expanding, and the service PMI has reached its highest level. The A-share market's rebound reflects increased market confidence. Macquarie Group, a financial company, points out that the construction industry in China is active, iron ore inventories have peaked, and national blast furnace steel production has increased. Morgan Stanley indicates that the supply-demand balance will support price increases. It is expected that stable demand, a lack of shipping supply, and reduced Chinese inventories will drive spot prices in the third quarter to further rise to $120 per ton
With the stabilization of China's macroeconomic data and the rebound of the stock market, the market's optimism about the global economic outlook is gradually strengthening, and bulk commodity prices such as iron ore are seeing significant increases.
This week, the Singapore iron ore futures price recorded the largest two-day increase in over two years, mainly benefiting from the positive prospects for steel demand and production growth in the world's second-largest economy - China.
Recent macroeconomic data also indicates that the Chinese economy is forming a potential bottom, with China's March manufacturing PMI returning to expansion territory for the first time in 6 months, the service PMI hitting its highest level since June, and a factory index in the S&P Global PMI reaching a 13-month high.
The recovery of A-shares also reflects market confidence, with the CSI 300 Index rising by 13% from its low in early February to early April. Despite a decline of over half since February 2021, the CSI 300 Index's stock market volatility seems to have stabilized over the years.
Looking ahead to this year, the financial firm Macquarie Group pointed out that April and May are the most active periods for China's construction industry, with iron ore inventories at ports already peaking and national blast furnace steel production continuing to increase. Rob Stein, a metals analyst at Macquarie, stated in a media interview:
The market is returning to normal seasonal trends, with hot metal production expected to continue increasing throughout the year, which will help stabilize iron ore prices in the range of $110 to $120 per ton.
Morgan Stanley mentioned that the supply-demand situation will support price increases. Nick Savone, Global Stock Sales Director at Morgan Stanley, mentioned:
The team's supply-demand model indicates that the market is in a tight balance, supporting further price increases. It is expected that with stable demand and further exacerbation of the lack of sea freight supply, reduced Chinese inventories will drive spot prices up to $120 per ton in the third quarter.