Iron ore majors remain strong

The strong outperformance of iron ore majors in 2023 is likely to run for at least the next six months with China’s steel production at “robust levels and expected to move higher”, analysts at Citi say.

While slowing global growth is expected to be a headwind for metals this year, the momentum underpinning China’s steel build-up and potential higher than expected earnings are strong tailwinds for the sector.

It comes as China’s port inventories of iron ore are struggling to recover given ongoing supply-side tightness.

Citi’s research head Paul McTaggart said the broker was looking for a reversal in iron ore/metals performance – but not until well into the second half of this year.

“In addition, consensus estimates for iron ore prices in Q4 CY23 and 1H CY24 look too low, so earnings momentum for the iron ore exposures is expected to remain positive in the first months of CY24.”

On Wednesday, iron ore futures on the Singapore exchange were stronger at around $US142.55 a tonne – close to its 21-month high of $US143 a tonne a day earlier.

These prices are still higher than first-half consensus iron ore price forecast of $US108/ tonne and Citi’s estimate of $US125 a tonne.

That milestone on Tuesday triggered record closing prices for Rio Tinto at $136.57 and Fortescue at $29.39.

Both are tracking losses on Wednesday afternoon – in line with the overall ASX 200 slump of more than 1 per cent. Rio is down near $134.89 and Fortescue near $28.99.

On Wednesday, Fortescue confirmed it is “on target for normal operations to resume today” in WA’s Pilbara region after a derailment on Saturday. No one was injured in the incident that involved multiple iron ore cars derailed about 150km south of Port Hedland. The incident did not have an impact on December or firsthalf shipped tonnes, but it’s not clear if January exports are affected.

Citi retained its buy rating on Rio Tinto and left BHP at neutral.