The iron ore price has tumbled from its March peak this year but is still trading higher than November lows.
ASX 200 shares impacted by the iron ore price include Fortescue Metals Group Ltd (ASX: FMG), BHP Group Ltd (ASX: BHP) and Rio Tinto Ltd (ASX: RIO).
Let's take a look at what could be weighing on the iron ore price so far in 2023.
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What's going on?
Iron ore has been on a roller coaster in the last 12 months. The commodity hit a yearly high of US$147 a tonne on 8 June last year, trading economics data shows. From this high, iron ore slumped nearly 45% to US$81.50 on 1 November.
Following the November lows, iron ore made a major comeback, rising 65% to US$134.50 on 15 March 2023.
However, iron ore then tumbled below US$99.50 on 5 May before bouncing back to US$107. However, iron ore has again retreated nearly 4% in a day and is priced at US$103 a tonne at the time of writing.
Iron ore is the major ingredient of steel. And China is the world's largest importer of steel. This means data and activity out of China can weigh on the iron ore price.
ANZ commodity strategists Daniel Hynes and Soni Kumari are watching China's steel demand closely. In a research note on Thursday, they noted iron ore has "been under pressure" amid "weak demand from China's steel industry". In a research report, they added:
Initial hopes of strong demand have evaporated as the real estate market chips away at a mountain of debt.
China's steel industry PMI hit 45 in April, its lowest level since December 2022.
Exports are now rising amid the softness in the domestic market. Without additional fiscal stimulus, growth in steel demand is likely to remain weak.
The strategists see iron ore prices "finding a floor" near US$95 per tonne.
A Hong Kong trader, quoted by the Financial Times this week, highlighted the market was expecting China's steel demand to lift more than it has this year. He said:
The demand for steel has collapsed since the start of April.
The market was expecting a 10 per cent increase in steel demand for infrastructure [this year], but our most optimistic estimate is 2 per cent.
Share price snapshot
The BHP share price closed on Friday at $43.48, an 8.6% leap over the past year. Fortescue shares closed at $20.10, up 5.7% in 12 months, while Rio Tinto shares are 107.96 apiece, 43% higher than this time a year ago.
