Iron ore prices rise on hopes of China steel demand rebound

Singapore iron ore futures experienced an upswing on Tuesday, fueled by optimistic projections of heightened demand from the steel industry. 

These expectations are tied to the anticipated resumption of production by steelmakers in northern China, a region that holds significant sway as the world's leading consumer of iron ore. 

The resumption is slated to occur in the wake of the conclusion of China's annual parliamentary meeting, also known as the National People's Congress.

This yearly gathering typically sets the tone for China's economic policies and infrastructure investments for the coming year. 

China's annual legislative meetings, also known as the Two Sessions, began on March 4 and will conclude today.

Meeting expectations

Market sentiment suggests that the meeting's outcomes will likely favor infrastructure development, which, in turn, would bolster the demand for steel and, consequently, iron ore. 

The National Development and Reform Commission announced plans to cut China's annual steel production during the current parliamentary session. 

While the Commission didn't specify the size of the reduction, media reports estimate it to be around 50 million tons, approximately 5% of last year's output.

The extent to which this will be implemented remains to be seen. 

Recent years have seen frequent discussions about production cuts, but these discussions have not resulted in significant progress.

Volkmar Baur, FX analyst at Commerzbank AG, said:

The northern region of China plays a pivotal role in the country's steel production, and the resumption of operations by steel mills in this area is seen as a key indicator of the overall health of the steel industry and the broader economy.

Tariffs and demand concerns cap gains

The US President Donald Trump's latest tariffs and the potential steel output cut in China have escalated global trade friction. This, along with concerns over demand, capped the gains on Tuesday. 

Iron ore prices experienced mixed results today. 

The benchmark April iron ore on the Singapore Exchange initially fell to its lowest level since January 14, hitting $98.85 a ton, but later rebounded to close at $100.65 a metric ton, a 0.76% increase. 

Meanwhile, the most actively traded May iron ore contract on China's Dalian Commodity Exchange saw a 0.19% decrease, ending the morning session at 773.5 yuan ($106.73) a ton.

Iron ore demand to remain weak

Iron ore demand is typically gauged by hot metal output.

Key steelmaking ingredient prices fell on Monday as hopes for additional stimulus from China faded and concerns over the potential impact of new tariffs from Trump clouded demand prospects. 

This was driven by weak macro sentiment.

Steel production in China likely increased in the first two months of the year, based on preliminary 10-day data, according to Commerzbank. 

However, official figures will not be published until March 17.

“However, the ongoing problems in the Chinese property market indicate that steel demand is unlikely to increase in 2025,” Baur said. 

The continued problem of overcapacity in Chinese steel production increases the likelihood of an actual production cut in China.