Iron Ore Stuck in a Tariff-Driven Limbo: China's Growth vs. Trade War Headaches

Investors in iron ore are caught in a tug-of-war between two opposing forces: China’s flickers of manufacturing recovery and the escalating U.S.-China tariff battle threatening global supply chains. As of April 2025, iron ore prices have stalled near $100 per ton, with the Dalian Commodity Exchange trading at 780.5 Yuan ($107.47) and Singapore’s benchmark hovering around $101.5/ton. The market remains in a rangebound state, reflecting uncertainty over whether Beijing’s domestic stimulus will outweigh the damage from trade disputes.

China’s Manufacturing Glimmer: A Fragile Rally

The latest data offers a sliver of hope. China’s manufacturing PMI for March 2025 hit a 12-month high of 50.5, marking the first expansion in 11 months. Analysts attribute this to a rebound in domestic demand, particularly in construction and infrastructure spending. Steel production data corroborates this: Mysteel reported a monthly rise of 10,200 tonnes in hot metal output, reaching 2,372.8 million tonnes in March—a sign that mills are ramping up activity.

Yet, the optimism is fragile. Pinpoint Asset Management’s Zhiwei Zhang warns that Q2 2025 could see a slowdown as U.S. tariffs—now as high as 84% on Chinese exports—crimp external demand. “The trade war is shifting the growth dynamic from ‘domestic-led recovery’ to ‘domestic stimulus offsetting export losses,’” he says.

Tariffs: The Elephant in the Ore Pit

The U.S. has weaponized tariffs with unprecedented ferocity. On April 8, President Trump’s Executive Order 14257 hiked duties on Chinese goods from 34% to 84%, while adding a 90% ad valorem duty on low-value imports. Beijing retaliated by imposing 34% tariffs on U.S. products and restricting seven rare earth minerals—a move targeting U.S. tech and defense supply chains.

While iron ore isn’t explicitly listed in these tariff schedules, the broader trade war dynamics are critical. China’s steel sector—a key iron ore buyer—faces dual pressures:
1. Export headwinds: U.S. tariffs are squeezing Chinese steel exports, reducing incentives for mills to boost production.
2. Input cost volatility: Rising tariffs on imported machinery and energy could increase operational costs for steel producers.

Market Psychology: Hope vs. Headlines

Traders are split. Bulls point to China’s $100 billion infrastructure stimulus package and signs of property sector stabilization (new home sales rose 5% in March). Bears cite Piper Sandler’s grim forecast: U.S. GDP could shrink by 2.6 percentage points due to tariffs, while the EU’s potential retaliatory tariffs (rumored to include steel) could further disrupt demand.

Iron ore prices reflect this indecision. After dipping to a five-month low of $91.70/ton in early April, prices rebounded slightly on hopes of Chinese stimulus but remain trapped between $95–$105/ton—a range unchanged since November 2024.

The Wild Card: Geopolitical Realpolitik

Beyond tariffs, the U.S. is pursuing a global mineral strategy to reduce reliance on China. Deals with Ukraine, Congo, and Greenland aim to secure cobalt, nickel, and rare earths—critical for steel alloys and electric vehicles. Meanwhile, China’s Angang Steel, which posted a $1 billion loss in 2024, symbolizes the industry’s vulnerability to overcapacity and trade shocks.

Conclusion: Patience, but Prepare for Volatility

Investors should brace for more rangebound trading in iron ore until clearer signals emerge. The May release of China’s manufacturing PMI (likely due May 30, 2025) will be pivotal. A reading above 51 could trigger a short-term rally, while a drop below 50 might reignite fears of a hard landing.

Longer-term, the trade war’s impact on GDP growth is the critical variable. Piper Sandler’s projection of a 1–2% China GDP hit suggests weaker steel demand, potentially pushing prices below $90/ton. Conversely, if Beijing’s stimulus spurs a sustained manufacturing rebound, prices could climb toward $120/ton by year-end.

For now, the iron ore market is a prisoner of geopolitical chess. As one Singapore-based trader quipped, “We’re all waiting for someone to blink—either Beijing or Washington. Until then, the ore stays stuck in no-man’s-land.”

Final Take: Monitor China’s PMI and tariff developments closely. Positioning for a prolonged stalemate makes sense—consider hedging with futures or scaling back exposure to pure-play iron ore miners until the trade war’s trajectory becomes clearer.