China-Led Rally Sends Iron Ore Over $100 Despite Looming Oversupply

Iron ore prices have rebounded above $100 for the first time since February. Renewed optimism about China's economic resilience and the announcement of construction of the world's largest hydropower dam drove momentum of the futures market in Singapore.

Yet, some analysts believe the rally is unsustainable given the market dynamics and healthy capacity increases from key producers.

In a note cited by Bloomberg, Citi strategists, including Shreyas Madabushi, warned that "prices are currently above market fundamentals," suggesting a more modest and gradual decline in steel output rather than an aggressive contraction.

Meanwhile, Rio Tinto (NYSE:RIO) has fast-tracked its timeline for shipments from the massive Simandou iron ore mine in Guinea. The firm expects to ship 0.5 to 1 million tons this November.

While the monumental project could deliver as much as 120 million tons annually, the ramp-up should remain gradual.

RBC analysts forecast output will reach just 12 million tons in 2026 and not top 48 million until 2028.

RIO's rival BHP (NYSE:BHP) reported a 14% quarter-on-quarter jump in Q4 iron ore production to 70.3 million tons, helping push annual output to a record 290 million tons.

While oversupply looms, official Chinese economic data indicate strong demand, further supported by Premier Li Quiang's Monday announcement.

Quiang broke news on construction of the world's largest hydropower dam on the Yarlung Tsangpo River. The dam, which is expected to exceed the Three Gorges Dam by at least a factor of three, is expected to drive significant demand for construction-grade steel.

Per China Briefing's report, GDP rose 5.3% year-on-year in the first half of 2025, with industrial output up 6.4%, services growing 5.5%, and retail sales up 5.0%. Fixed asset investment rose 2.8%, led by manufacturing, and disposable income grew 5.4% in real terms. National Bureau of Statistics Deputy Head Sheng Laiyun called the results a "hard-won achievement" amid global volatility.

Former Australian Ambassador to China Geoff Raby noted that Prime Minister Anthony Albanese's latest visit to China provides an opportunity.

"Although China's growth in demand for Australian iron ore is tapering off, the absolute volume we sell is so large that even a small uptick in demand will lead to tremendous increases in volume," Raby told ABC. "It's a two-way relationship," he added, arguing that China's pivot to green steel is not a threat, but a future opportunity for Australian producers.

"We have massive potential in terms of renewable energy. Ross Garnaut has written about this on numerous occasions in books, and he talks about Australia being the energy superpower of the future because of this very reason."

Raby also clarified that Australia must balance its engagement with China against global pressures, especially from the U.S.

"The Prime Minister has stuck to our strong commitment to free trade, and has not gone down the path of retaliatory tariffs. So, I think that puts us in a very strong position," he said.

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