China: Iron ore prices likely to remain volatile in near term

Imported iron ore prices in China may follow an inverted 'V' trajectory during this month, mainly reflecting changes in steelmakers' demand for the feedstock, Mysteel's latest monthly report notes.

Until around next week, imported iron ore prices will continue the slow climb they commenced in late May, because steel mills' demand for ore will remain firm, according to the report. The mills' improved steel margins will encourage them to maintain hot metal output at a high level, it suggested.

Indeed, Mysteel's tracking showed that the average profit enjoyed by blast-furnace steelmakers in North China's Hebei had reached Yuan 12.42/tonne ($1.7/t) by May 26, compared to the deep loss of Yuan 124.4/t that the same mills had suffered a month earlier.

Consequently, since late last month, some steelmakers had started bringing some BFs back online after maintenance, as reported. Banking furnaces was the makers' only recourse if they wanted a respite from their prolonged losses, Mysteel Global notes.

Over the week to June 1, daily hot metal output among the 247 Chinese BF steelmakers remained high and steady to reach 2.41 million tonnes/day on average, slightly higher from the average of 2.4 million t/d as at May 4, according to Mysteel's regular survey.

Nevertheless, after mid-June iron ore prices will face downward pressure when steel mills will need to rein-in their output, the report highlighted, pointing out that more mills will suffer losses in finished sales again due to the imbalance between steel supply and demand.

At that time however, just as iron ore demand weakens, supply will increase, the report added, as overseas iron ore miners will beef up shipments of ore worldwide this month to deliver satisfactory results for the current quarter.

As a result, China's port stocks of iron ore will accumulate steadily from the middle of this month, according to the report.

By June 1, total iron ore inventories at the 45 Chinese major ports sampled by Mysteel had slid to 127.5 million tonnes, down by 412,900 tonnes on week after a two-week rise, the latest survey showed.

Last month, Chinese prices for imported iron ore tracked in a V path, with prices first trending down due to steelmakers' reduced steel output before recovering when some mills resumed production, Mysteel Global noted.

For example, Mysteel SEADEX 62% Australian Fines tumbled to a six-month low of $97.3/dmt CFR Qingdao on May 24, before rebounding to $103.65/dmt on May 31 and eventually winding up some $3.15/dmt lower on month.

Written by Lea Li, liye@mysteel.com

Edited by Zhenqi Yang, yangzhenqi@mysteel.com

This article has been published under an article exchange agreement between Mysteel Global and SteelMint.