Iron Ore Faces Renewed Pressure Amid China's Economic Indicators

Iron ore prices experienced a fresh downturn as steel production fell 8% year-on-year to 88 million tonnes in March, as per data released by China. This decline, attributed to ongoing challenges in China's property market and subdued steel demand, adds to the metal's already significant year-to-date loss of over 20%.

Investors are closely monitoring iron ore prices for signs of recovery amid China's economic landscape.

China's steel mills responded to weakening demand by cutting production in March, exacerbating challenges in the steel industry. Producing 88.3 million tonnes in March, the output dropped 7.8% YoY. It fell by 1.9% year-to-date. Margins and prices are under pressure, with construction activity showing signs of decline. This downturn in steel production is closely tied to iron ore prices, highlighting broader challenges within the metals market.

The following graph from Bloomberg, attributed to National Bureau of Statistics, displays China's Steel Production trends from 2015 till 2024 YTD.

In contrast to iron ore and steel, aluminium producers are seeing improved conditions. China's manufacturing PMI returned to expansion in March after a five-month period of contraction, driving the demand for aluminium. With output on the rise, aluminium producers are navigating a more favourable market compared to other metals.

Jefferies' preference for copper and aluminium reflects optimism for potential demand growth amid a recovery in global PMIs. The brokerage has also tweaked its model portfolio, favoring Hindalco Industries Ltd. over Tata Steel Ltd. as a beneficiary of potential global PMI recovery and China's rebound, with steel construction demand muted in China.

News of China's steel output slump prompted a 3.2% drop in iron ore prices. While the country's total economic growth exceeded forecasts in the first quarter, steel production fell.

Iron ore, which shot up 13% last week, was put on hold by Tuesday's decrease. Leading miners Vale SA, Rio Tinto Group, and BHP Group Ltd. will release quarterly production reports this week. Investors are closely monitoring these production reports for insights into supply dynamics and future price movements.