Iron ore futures saw a significant increase on Thursday, driven by renewed optimism about a rebound in demand from China, the world's largest consumer. However, gains remain constrained by ongoing caution regarding rising inventories and concerns over the pace of recovery in steel demand.

The most-traded January iron ore contract on the Dalian Commodity Exchange (DCE) ended the morning session with a 0.99% gain, reaching 763.5 yuan ($107.21) per metric ton. Meanwhile, the benchmark September iron ore contract on the Singapore Exchange rose by 1.34% to $102.15 per ton as of 03:42 GMT.

Shia Qingwei, an analyst at Shanghai Metals Market (SMM), noted, "We expect hot metal production to increase next week despite the current downturn." Hot metal production, a byproduct of the smelting process, is often used as an indicator of iron ore demand.

Analysts at BMI have revised their 2024 iron ore price forecast downward from an annual average of $120 per ton to $110 per ton, due to persistently weak demand in China, which continues to pressure the market. They added that negative sentiment surrounding China's real estate sector, which appears to be experiencing irreversible deterioration, could exert further pressure on prices.

Divergent Performance of Steel Benchmarks Amid Market Shifts

Steel benchmarks on the Shanghai Futures Exchange exhibited mixed performance. Rebar (SRBCv10.4) experienced an increase, and hot-rolled coil (SHHCCv1) rose by 0.15%, while wire rod (SWRCv1) fell by 1.32%, and stainless steel (SHSSCV1) remained largely unchanged.

Jiang Wei, Secretary-General of the China Iron and Steel Association (CISA), stated in a Wednesday update on the association's WeChat account that "many steel producers have begun maintenance or reduced production due to industry losses, contributing partially to the decline in inventories and the rebound in steel prices."

However, Wei emphasized that "the recovery remains extremely fragile. Steel mills need to continue exercising self-discipline to adjust production, reduce inventories, and stabilize market fundamentals to avoid intense competition driven by ‘development’ strategies."