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The China reopening trade: Is there further upside for iron ore after a 50% rally?

By Indrabati Lahiri

09:01, 5 January 2023

Aerial view of open pit iron ore mine
Iron ore prices have been on the rise since November 2022 following signs of Chinese economic reopening – Photo: Getty Images

Iron ore prices have been consistently on the rise since November 2022, when China started giving out the first hints of reopening its economy after months of prolonged zero-COVID-19 lockdown. Since then, the base metal had already seen about a 50% rally, trading at about CNY 819 per tonne.

However, with China facing an alarming number of rising COVID-19 cases at the moment, investors are wondering whether we may see mass lockdowns coming back before long. If this happens, iron ore may once again face difficulties.

Could iron ore potentially rise further following its 50% rally?

Iron ore, like most other base metals, had been struggling significantly around November 2021, following the near-collapse of the property developing giant Evergrande. However, since then, the metal has been faring quite decently, seeing less declines than expected.

This is mainly due to China having rolled out a slew of stimulus measures in the last few months, with a particular focus on the real estate and construction sector, in order to cushion the economy from the continued blows of lost revenue and decreased production due to COVID-19.

This has included a range of financing measures, such as loan repayment extensions, in order to pump more liquidity into the sector. This has also included a much-needed mentality shift which has seen the government now focusing on helping both projects and developers, instead of only projects earlier. A macro shift has also come in the way of genuinely providing all kinds of support to ailing industries at the moment, instead of only imposing restrictions and maintaining laws.

This has gone a long way in keeping iron ore prices afloat in the last few months. In addition to that, China was showing a number of very encouraging signs of reopening its economy further, following months of oppressive zero-COVID-19 lockdowns.

This change in sentiment was marked by mass protests sparked after a high-rise fire in Urumqi killed 9 people due to the delay of emergency services. The relaxations have come in the form of the end of hospital quarantines for mild cases, as well as no negative tests required to enter public places, amongst others.

Although China has been announcing new stimulus measures at regular intervals for the last few months, a key question is how long these can be sustained. This is because inevitably at some point the government will have to cease or withdraw some of these measures, as the reopening journey progresses. If this happens, iron ore may once again face a dip in demand.

The most recent Caixin China General Services PMI number for December 2022 has also been a mixed bag, coming in at 48. Although this was certainly an increase from November’s six-month low of 46.7, it is still contractionary and represents a decline in industry. However, this could also be a sign that China has finally started overcoming the worst of its hurdles.

On the other hand, if the number of COVID-19 cases in China rise to a truly unmanageable level in the near future, we may yet see the reimposition of mass lockdowns, which could lead another blow to industries and manufacturing.


3,199.58 Price
+1.050% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 6.00


20,336.40 Price
+0.570% 1D Chg, %
Long position overnight fee -0.0263%
Short position overnight fee 0.0040%
Overnight fee time 21:00 (UTC)
Spread 7.0


2,411.42 Price
-0.180% 1D Chg, %
Long position overnight fee -0.0191%
Short position overnight fee 0.0109%
Overnight fee time 21:00 (UTC)
Spread 0.60


60,129.60 Price
+2.580% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 106.00

Analyst comments on iron ore

According to Piero Cingari, markets specialist at, “Iron ore prices have been buoyed over the last two months by China’s expedited reopening from Covid lockdowns in 2022. Last week, Chinese authorities downgraded COVID-19 containment measures and eliminated quarantine for all international travellers effective January 8, 2023.

These are clear indications from the government that the plan to reopen the economy should be adhered to.Now, it looks like the government is taking a pro-growth policy stance, and more fiscal and monetary stimulus in China could boost steel demand and keep the rally in iron ore going.

Iron ore prices are already at their highest level since end-July 2022, but after a 50% comeback from November’s lows, the commodity still has a ways to go to reach its pre-April 2022 lockdown levels of $150-160/t (CNY 1,000-1,100/t).

Technically, overbought RSI levels may be a reason to be slightly cautious in the very short term, but the price action is also attempting to break the 200DMA. If bulls triumph here, they may next aim for CNY 880/t ($130/t)”

Iron ore prices have been on the rise since November 2022

Iron ore chart showing the 50-day and the 200-day moving average

Iron ore prices have been on the rise since November 2022 – Credit: TradingView

What is the outlook for iron ore?

Iron ore prices have another key factor to consider in the short-term, the possibility of slowing global economic growth, especially in China in the first few months of the year. This could also lead to a mild recession. In this scenario, iron ore prices are likely to suffer a little.

However, according to this report, the outlook for the second half of the year is a little more encouraging, which could go a long way in buoying iron ore prices once again. This is especially true as construction and real estate activity in China picks up once again.

Investors are also keeping an eye on the rate and pace of the US Federal Reserve’s interest rate hikes, as this will play a major role in determining whether large construction projects are able to move forward in the near future or not. This is mainly due to these kinds of projects relying significantly on financing measures and external debt, which makes interest rates a key factor to consider.

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