The seeds for iron ore’s latest lurch lower were sown last week

Iron ore futures are in a growing bear market
Chinese property construction is the largest single source of steel demand globally
A sizeable inverse hammer candle last week set the tone for the price action seen over recent days
Bias remains to sell rallies

Iron ore futures are in an increasingly ugly bear market, spiraling lower since the beginning of the year after defying bears throughout much of 2023. With the price catching up to what fundamentals had been warning for months, traders are wondering how far the move can extend?

While there’s a common misconception that you need to be iron ore expert to have an edge, for what it’s worth, iron ore futures chart beautiful on the daily, providing ample room for those who want to look exclusively at price to have trading success.

Fundamentals have been warning about a downturn

Before we look at the technicals, it’s worthwhile looking at some of the fundamental factors that may explain the unwind we’re seeing right now. Robert Rennie, a commodity markets expert from Australia’s Westpac Bank, provided some fantastic charts on X earlier this week revealing Chinese iron ore port inventories swelling rapidly in 2024, mirroring similar trends in Chinese steel inventories.

Source: Robert Rennie, X

While restocking is not unusual in China ahead of the spring construction season, the build coincides with weakening steel production and price reductions from some Chinese mills, fitting with the bearish price action seen recently.

Compounding concerns, China’s Housing and Urban-Rural Development Minister Ni Hong reiterated over the weekend the state’s long-held view that “houses are for living in, not for speculation”, dashing hopes for a loosening of property construction restrictions.

Even after the sharp downturn in Chinese construction activity last year, it remains the single largest source of steel demand globally, making iron ore prices particularly twitchy to changes in the demand outlook.

And now the iron ore price is responding

It’s not just the fundamentals that explain the rout in futures. So too does the technical picture.

Looking at the most actively traded April 2024 iron ore futures contract on the SGX, even without the commentary above, the seeds for the latest leg lower were sown last week with the massive inverse hammer candle printed on Thursday. It looks like a market feed issue, yet after checking on multiple platforms, it’s there.

The reversal that day, sending the price back through the 200-day moving average to briefly retest the downtrend from the beginning of the year before unwinding into the close, goes someway to explaining the ugly price action we’ve witnessed since, seeing the price take out support at $110.60.

After a modest bounce on Tuesday, futures are offered yet again on Wednesday, setting the scene for a potential retest of the next layer of support at $103.50. Below, $100 and $95.30 are the next downside targets.

Above, $110.60 is the first upside target along with minor resistance at $112. $118.90, with the 200-day moving average just above, are the next levels to watch.

While buying here is akin to catching a falling knife, that comes with the caveat that the price is also oversold. Bias is to sell rallies given the prevailing trend but wait for the price action to tell you what to do.

-- Written by David Scutt

Follow David on Twitter @scutty

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.