Iron Ore Bears Eye Simandou Shock in 2025

Simandou supply surge looms for iron ore in coming years
China steel output weakens, inventories near record levels
Iron ore’s $100+ era under threat

Summary

A toxic mix of declining Chinese steel production, elevated inventories, and a flood of high-grade supply from Africa threatens to send iron ore prices sharply lower in 2025. At some point, fundamentals must reassert themselves. While bearish calls have been plentiful in recent years, upside appears unlikely without a major supply or demand shock. As such, short iron ore screens as a high conviction trade for 2025.

Simandou’s supply-side threat

Years of speculation about the threat posed by Guinea’s giant Simandou iron ore project is about to be put to the test, with production expected to begin from late next year. Once fully operational, output could exceed 120 million tonnes annually by 2028. Put simply, a wall of high-grade supply is set to hit the market, reshaping global dynamics as producers in Australia and Brazil scramble to defend their market share.

China hits peak steel

Compounding the threat, Chinese steel production – the single largest source of iron ore demand globally – likely peaked earlier this decade, with output declining by an average of 2% per year since the early stages of the pandemic. At the same time, Chinese iron ore imports have surged 9% this year, not only pushing port inventories to near-record highs but also to unseasonably elevated levels.

Source: Westpac Bank, X

This amplifies downside risks for iron ore prices as increased supply gets absorbed into an oversupplied and weakening Chinese steel market. Even with higher steel output in other nations, global production is expected to contract 0.9% in 2024, according to Worldsteel estimates.

Iron ore technical analysis

Iron ore has defied bears for years, but you can't help but think that something’s got to give next year. While are unlikely to return to levels seen before China’s urbanisation push, the days of benchmark 62% fines holding above $100 a tonne for prolonged periods must surely be numbered.

SGX iron ore futures remain above $100 as we approach the end of December, but unlike prior years, the typical late October price surge was absent. Historically, Chinese mills restock ahead of the spring construction season, yet this time the market barely budged.

A string of failed bullish breakout attempts above $112 since July stands out, with the topside wicks on weekly candles from October onwards reinforcing the notion of selling pressure overhead. The price action suggests that resistance is not only firm but may also be shifting lower.

While MACD and RSI (14) continue to flash bullish momentum signals, the price action feels decidedly heavy, aligning with an increasingly bearish fundamental backdrop.

Source: TradingView

For those eyeing bearish setups, support levels include $102.70, the September uptrend near $100, $95.50, and $88.40. A break below the latter may open the door to $76.20, a level that acted as a key pivot around the onset of the pandemic.

As for potential entry points, the price has struggled to hold above the 50-week moving average throughout 2024. Additionally, the repeated failures above $112 further highlight the market's inability to sustain upward momentum.

-- Written by David Scutt

Follow David on Twitter @scutty

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