Iron Ore Climbs for Second Month as China Weighs Steel Output Limits

Gerik

Summary:

Iron ore is set for its first consecutive monthly advance in 2025, buoyed by Chinese steel output restrictions that are expected to ease pressure on struggling mills and support steel prices...

Market Overview

Iron ore futures in Singapore held steady around $104 a ton, marking a 4.5% gain in August, while Dalian yuan-priced contracts are also on track for a third consecutive monthly rise. The gains come despite China’s fragile macroeconomic environment, reflecting how supply-side policies are increasingly driving sentiment.

The market responded positively to a Reuters report that Beijing plans to strictly control steel capacity and cut production next year, a move that paradoxically supports iron ore prices by shoring up steel margins. In Tangshan, a steelmaking hub near Beijing, production cuts tied to pollution curbs and preparations for September’s military parade have also lent support.

Drivers Behind the Rally

Output curbs may seem bearish for iron ore consumption, but they improve the profitability of steelmakers, enabling mills to bid higher for raw materials. This dynamic mirrors previous episodes when government restrictions helped stabilize steel markets and indirectly lifted iron ore.

Mysteel data indicates moderate demand and inventory pressures in five key steel products, raising expectations for stronger activity in the peak September–October construction season. At the same time, stockpiles at major Chinese steel mills in mid-August ticked up, suggesting supply remains sufficient but not excessively burdensome.

Constraints and Risks

Despite the rally, iron ore remains vulnerable to China’s uncertain growth trajectory. The government’s “growth stabilization” document, cited in the Reuters report, has been criticized for lacking concrete objectives, leaving traders wary of how forceful policy support will be.

Moreover, while hot-rolled coil and rebar futures showed mixed performance, Dalian coking coal slipped 2%, highlighting uneven conditions across the broader ferrous complex. Without sustained infrastructure or property-sector recovery, iron ore’s upside could be capped.

Iron ore’s rebound the first back-to-back monthly advance since 2024 reflects policy-driven optimism rather than demand-led fundamentals. September and October will be critical test months: if seasonal construction demand aligns with steel production caps, prices could firm above $105–110. However, weak macro data or softer exports could reverse gains quickly.

Source: Bloomberg

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