Citi raises iron ore price forecast to $140 on China stimulus

The global mining industry is closely monitoring the shifts in iron ore prices as Citi analysts have recently upgraded their price forecast to $140 per tonne, fueled by expectations of increased investment in China’s urban development. The revised projection comes amid a seven-year low in iron ore inventories and a surge in November futures in Singapore to $134 per tonne.

Analysts from Citi anticipate that China’s policy focus on urban village redevelopment will catalyze a rebound in property starts, with an estimated growth of 8% for 2024. This initiative is expected to generate substantial construction activity, targeting the development of approximately one billion square meters of floor space over the next five years.

Despite signals of overbought conditions from the Relative Strength Index (RSI), Citi suggests buying iron ore on any market dips leading up to the Chinese New Year. Historical data underlines significant gains during this period, with average increases of +21.1%, +14.4%, and +18.3% over the last five, ten, and fifteen years, respectively. Shares of Fortescue Metals Group (OTC:) Ltd are reflecting this trend, trading at levels close to their peaks when iron ore prices previously hit significant highs.

On the other side, the National Development and Reform Commission (NDRC) has expressed concerns about speculative trading potentially leading to undue price inflation. Additionally, Commbank has voiced caution noting that past support measures have not prevented failures within real estate companies like Country Garden.

Iron commodities are currently trading at rates well above six times their production cost, suggesting strong upcoming earnings for mining companies as they prepare to release half-yearly reports. This optimistic outlook contrasts with earlier conservative estimates from banking economists who predicted year-end rates around $100 per tonne based on Australian resources.

Major mining firms such as Fortescue Metals Group Ltd and Mineral Resources are confident about sustained demand from China for their iron exports. Meanwhile, Rio Tinto (NYSE:) has hinted at a peak in steel production levels. Beyond China, the industry is also looking towards India’s growing steel demand and potential markets in Southeast Asia as alternative sources of demand.

Despite today’s dip in resource-related equities and high raw material costs like metallurgical coal impacting steel producers’ profitability, Chinese metallurgical analysts expect iron ore prices to stabilize at an average of $115 per tonne by 2024.

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