Iron ore rout set to deepen on US-China trade tensions; Chinese demand optimism lingers

The escalating trade tensions between the US and China could further pressure iron ore prices in 2025, as increased tariffs would likely curb both direct and indirect Chinese steel exports, miners and analysts told S&P Global Commodity Insights.

However, they remain optimistic that demand in the world's second-largest economy will remain resilient amid growth in manufacturing and infrastructure sectors.

Beijing announced Feb. 4 that it will impose an additional 15% tariff on US coal and LNG imports, along with a further 10% tariff on US crude imports, effective Feb. 10, in retaliation to the 10% tariff imposed by US President Donald Trump on Chinese goods starting Feb. 4.

Miners in Australia, the world's largest iron ore producer, are concerned that the market for iron ore, a steelmaking commodity, will only worsen.

"Australia is a trading nation, so there's no way [it] can escape the negative impacts of an international trade war. Of course, Australia should be concerned. It doesn't take an economist to realize there may be some troubled waters ahead," Warren Pearce, CEO of the Association of Mining and Exploration Companies, said in an email interview.

Pearce fears that if the Chinese economy slows, the steel industry will not require the same amount of iron ore as it did during China's strong growth periods. "We live in a cyclical industry, but cycles aren't normally impacted by government interventions, like what we are seeing at the moment," Pearce said.

According to Paul Bartholomew, a senior Commodity Insights analyst, manufacturing has been the "standout performer" among China's steel end-users over the past 18 months.

However, "any constraints on China's ability to export manufactured goods as a result of tariffs could have some impact on iron ore demand, especially as property construction looks set to decline and traditional infrastructure demand is tepid," Bartholomew said.

Following Trump's Feb. 1 tariff announcement, the Platts-assessed CFR 62% China iron ore price closed at $105/dmt Feb. 3 from $106/dmt on Jan. 31. Prices further fell to $104.4/dmt Feb. 5, Commodity Insights data showed.

Iron ore prices vulnerable

Trade conflict between the US and China could impact iron ore prices in multiple ways.

"Chinese policymakers are likely to weaken the yuan to offset higher US trade tariffs," which would lead to "lesser purchasing power to import iron ore from Australia, one of China's key trading partners for industrial metals," Kelvin Wong, senior market analyst at trading platform OANDA, said in an email interview.

This, in turn, will attract "systemic speculative short positions of both iron ore and the [Australian] dollar, since both have a strong direct correlation based on past data. These speculative actions may dampen the prospects of iron ore prices," Wong said.

Commodity Insights downgraded its 2025 iron ore price forecast to average about $98.2/dmt due to "weaker-than-anticipated restocking in China during the March quarter, escalating trade tensions and subdued expectations regarding the scale of Beijing's stimulus measures." The price could drop to $73/dmt by 2031 before starting to recover in 2032, it said in a Jan. 18 note.

Glimmer of hope

"China has always had the ability to find new customers and markets, so we think any impact on iron ore demand will not be too severe, at least in the short-term," Bartholomew said.

Major Australian iron ore producer Fortescue is also confident of Chinese demand despite the potential impact of tariffs. "Demand for steel in China has been resilient due to strong growth in manufacturing, infrastructure and renewable energy investment. We expect this to remain in the near term," a Fortescue spokesperson said over an email.

"We regularly monitor changing global trade flows. We see China continuing to actively support its domestic economy and steel demand," Fortescue said.