Macro: Sandcastle economics
Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.
Market Strategist
Summary: The original sleeping giant, iron ore, continues to rise out of almost two year grave yard lows, and is up 40% from its November 2021 lows, and this week briefly touched a new 3-month high US$132.30. The rally to the new high was caused by, firstly China announcing or starting 3 trillion yuan, US$471 billion, in infrastructure projects, and secondly, Brazilian iron ore giant, Vale the world’s second largest iron ore producer, halted some iron ore production, representing 40% of Vale output, due to heavy rains. The news helped iron ore giant BHP on the ASX charge 4% yesterday and close at $46.85, a new 5 month high, while Rio Tinto also rose about 4% to $111.70, a new 4 month high. We look at what's next for iron ore and the mega iron ore giants, and what you need to know now.
Okay, overnight, the iron ore price gave back the day prior’s move and fell 2.4% on Thursday, taking the iron ore seaborne price back to US$128.14, as news came out that Brazil’s rain will ease, paving a way for mining to return to normal for Vale. So now...the iron ore price is knocking on a key technical level. So what’s ahead? Will iron ore’s rally continue and support the iron ore heavy weights stocks rebound?
Firstly - what is iron ore used for and why is it important
Iron ore is the key ingredient in steel. It is the world’s second most traded commodity behind crude oil. And is Australia’s largest export and contributes 5% to Australian GPD.
China is the world’s biggest buyer of iron ore, importing 70% of its iron ore needs. China is also the world’s biggest steel maker. China’s steel mills import iron ore from global miners such as BHP, Rio Tinto, Fortescue Meals, Vale and Anglo American. However China is working toward reaching carbon neutrality by 2060 and rapidly cut back steel production in July last 2021 to clear smog ahead of this years Winter Olympics (in Beijing, Feb 2022). That essential triggered the iron ore price to fall out of bed in July 2021 and fall 60% from US$214, to US$89.50 in November 2021. But since hitting that bottom, around November 23, iron ore slowly started to claw out of its bear market and gained 42% to where it is today.
Globally, so far this year and month to date, it’s really important to note, iron ore stocks and broad commodity stocks, have produced some of strongest gains, out of all the global themed stocks we track (for more please see our equity theme baskets).
Recent iron ore developments
On the positive side, what to note;
On the negative side, what to watch;
Iron ore technical update
Saxo’s Technical Analyst Kim Cramer Larson pointed that iron ore has slowly been approaching resistance at around US$132.60. It is performing what looks like an ABC correction, which usually follows after a 5 wave move. A close above 132.60 is likely to extend the rebound to US$150-160. If rejected there is risk down to around US$108. If that scenario is to play out first warning could be RSI breaking below the rising trend line.
Stocks to watch
BHP- the biggest iron ore stock in the world
Other stocks to watch
Other heavyweight iron ore miners in production on the ASX include: