The iron ore price tumbled to a 17-month low, but the crash has ignited speculation that the commodity is close to bottoming.
That would be very welcomed news for ASX iron ore shares. The BHP Group Ltd (ASX: BHP) share price, Fortescue Metals Group Limited (ASX: FMG) share price and Rio Tinto Limited (ASX: RIO) share price have been under pressure in the last four months.
It's during that period that the steel-making ingredient dived from a record high of around US$220 to around US$94 a tonne.
Why the iron ore price could rebound
But a turnaround may be in sight with some experts pointing to China's steel output. This is on track to meet and even exceed the government's goal of capping 2021 steel production at 2020 levels.
The September figures are the silver-lining for the embattled iron ore price. The Australian Financial Review reported that steel production that month fell to levels below those mandated by China.
This means the commodity could rebound as soon as next month, according to Australia and New Zealand Banking GrpLtd (ASX: ANZ) senior commodity strategist, Daniel Hynes.
ASX iron ore shares are steeling themselves
"China is on track to meet its target of holding this year's steel production at 2021 levels, so steel output could start to rebound in December," the AFR quoted Hynes as saying.
"This would flick China's iron ore market balance from surplus to deficit in December, and provide a floor for prices."
The Chinese government is trying to control pollution by curbing steel production in the country. This triggered the slide in the iron ore price.
When bad news can turn good
It never rains but pours. The weakness was then exacerbated by fears of a collapse in China's housing construction market after China Evergrande Group struggled to pay creditors.
Evergrande is one of China's largest property groups and there are signs that its rivals are facing similar financial strife.
Throw in harsh lockdowns in the Asian giant to deal with a new outbreak of COVID-19 pandemic, and you can see why the Chinese economy is struggling. This has led to speculation that the Communist Party may need to stimulate its economy.
2022 outlook for the iron ore price
Government stimulus is usually a big positive for commodity prices, including the iron ore price. If this comes to pass, Chinese stimulus may hit the market roughly the same time as the US unleashes its US$1.2 trillion infrastructure spendathon.
Meanwhile, the iron ore price has another support from the supply side of the equation. Iron ore shipments from some of the world's largest producers have fallen short of their mark.
This includes Vale SA (NYSE: VALE) and Rio Tinto. Not so good news for these iron ore miners, but good news for the wider industry.
Suddenly, the outlook for iron ore doesn't look half as bleak.
