Iron Ore's Rocky Road to Recovery: Bullish Signals Amid Structural Headwinds

China's steel sector is in a precarious balancing act: plummeting domestic demand clashes with surging exports and a technical rebound in iron ore prices. While crude steel production hit a 10-month low in June, iron ore imports surged to a yearly peak, creating a paradox. Is this a fleeting rally or the start of a sustained recovery? Let's dissect the data and technicals to uncover the opportunity—and the risks.

Demand Resurgence? Parsing the Contradictions

China's steel industry is drowning in overcapacity, with output in the first half of 2025 hitting its lowest level since 2020. Angang Steel Co. reported a staggering $159 million loss, and Maanshan Iron & Steel followed suit. Yet iron ore imports jumped 8.5% year-over-year in June, driven by two factors:
1. Export-driven production: Steel exports hit 30.7 million tons in Q2 (+11% YoY), with semi-finished goods like billet surging over 300% in the first five months.
2. Strategic buying: Mills snapped up low-priced iron ore to improve margins, even as domestic demand for rebar (a key construction material) collapsed 22.8% since 2021.

The property sector's freefall—record inventory and 24% fewer new projects—continues to weigh on demand. Yet exports and opportunistic buying have created a lifeline.

Supply Constraints: A Double-Edged Sword

Exports may buoy demand, but China's push to shutter 50 million tons of steel capacity in 2025 faces implementation hurdles. Meanwhile, global supply dynamics are shifting:
- Simandou's delayed impact: Rio Tinto's Guinea project, promising 120 million tons/year by full capacity, faces infrastructure bottlenecks. First shipments in late 2025 will initially add only 30 million tons, delaying oversupply pressures.
- High-grade ore premium: Beijing's stricter emissions rules favor higher-grade iron ore (65%+ Fe), favoring producers like Vale and BHP, which dominate premium reserves.

Technical Bull Case: Moving Averages Signal a Turnaround

While macro risks loom, technicals suggest a short-term bullish bias—if traders can navigate the noise.

The 5-day MA has crossed above the 20-day and 50-day averages, a bullish “golden cross” signaling a potential uptrend. The RSI at 58.99 remains in neutral-to-bullish territory, despite the MACD line dipping below its signal line.

Key Levels to Watch:
- Resistance: $100.80 (psychological threshold; breach could target $104.40).
- Support: $93 (key short-term floor), then $91.75 (yearly low).

Bullish Trade Setup—With Caveats

Recommendation: Go long on iron ore futures near $100.80, targeting $104.40–$106, with a stop-loss at $93. If prices hold above $91.75, reevaluate the bearish MACD divergence.

Risks to Avoid:
1. Trade wars: U.S., EU, and Vietnam's anti-dumping tariffs could crimp exports, a key pillar of demand.
2. Seasonal slowdown: Q4 construction lulls in northern China could depress prices.
3. Simandou's eventual overhang: Once Guinea's capacity ramps up, supply could overwhelm demand.

Final Analysis: A Short-Term Gamble with Long-Term Uncertainties

The current rally hinges on China's policy resolve: will Beijing unleash infrastructure spending to revive property demand, or will trade tensions and overcapacity keep steel mills afloat only via exports? For now, the technicals and export momentum justify a cautious long position—but set stops at $93. The road to recovery remains rocky.

Invest wisely, and stay vigilant.