Is Iron Ore Ripe For A Pullback?

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Iron ore is used in the production of steel. China is the dominant user of iron ore, and imports it mostly from Australia and Brazil. Like many commodities, it is highly volatile. Prices often overshoot and undershoot fundamentals by a large degree.

Last May (2021), benchmark iron ore prices reached a record high of around $233.10 per metric ton. It subsequently plunged below $90 in Nov 2021, before staging a steady rebound. The price as of today is about $124.

1-Year Iron Ore Price Chart

The rebound was driven mainly by expectations of higher demand this year. However, there is no certainty of actual demand meeting these expectations. There are too many forces at play affecting both supply and demand to be able to accurately predict future price. Some of these forces are Chinese property sentiment, policy developments on infrastructure, weather and mining output curtailments.

Iron ore stocks have rebounded by as much as about 50% based on this optimism. If the optimism proves to be unfounded, expect the prices to retrace. It may be opportune to take a small bet against iron ore, or monitor closely for developments in the sector to gather more clues on future trend before entering a position.