China: Support for iron ore prices to gradually weaken in Jan'25

• Financial strain, output curbs to slow restocking efforts
  
  
• Higher imports from Brazil, Australia may glut supply
  
  

Mysteel Global: With the Chinese New Year holiday beginning in just four weeks' time, the pre-holiday stockpiling of iron ore will lend some support to prices of the feedstock this month, according to Mysteel's latest monthly report on the commodity. However, ore prices will also face downward pressure as the seasonal decline in hot metal output at mills will see them slow ore replenishment, the report adds.

Last month, Chinese prices of imported iron ore first fluctuated and then started to lose ground from the second half of the month, with Mysteel's SEADEX 62% Australian fines index dropping by $4.45/dry metric tonne (dmt) from end-November to $100.6/dmt CFR Qingdao as of 31 December. The dip reflected the gradual cooling of market optimism, lifted earlier by central government announcements, and the fact that more steelmakers idled blast furnaces for overhauls in response to sluggish steel demand.

This month, the fundamentals for China's iron ore market are expected to weaken, the report suggests. On the supply side, arrivals of imported iron ore at Chinese ports are likely to increase, due to rising shipments from miners in Brazil and Australia. Producers in these regions usually ramp up ore shipments in December to present better annual or half-year performance reports.

Mysteel tracking data shows that the total volume of iron ore dispatched to global destinations from the 19 ports and 16 mining enterprises in Australia and Brazil during 23-29 December rose by a significant 4.6 million tonnes (mnt) or 18.5% w-o-w to 29.4 mnt, the highest during the July-December half.

On the demand side, construction activities in China, already affected by the cold winter weather, will slow further as the eight-day Chinese New Year (CNY) holiday approaches, leading to more blast furnaces being halted for maintenance. This year's CNY holiday spans 28 January-4 February.

Mysteel's other survey forecasts that the daily hot metal output among 247 mills operating blast furnaces nationwide will drop by 1.9% m-o-m to average 2.26 mnt/day in January. Figures lower than the forecast are also possible if mills suffer deeper losses and decide to further rein in their hot metal production.

However, though domestic steelmakers will keep operating and consuming iron ore during the holiday break, they will be unable to purchase raw materials, as most traders and logistics firms will suspend business for the holiday. This usually leads mills to build up their iron ore stocks ahead of CNY.

As of 26 December, the total stocks of imported iron ore in all forms held by the 247 sampled steelmakers had increased for the sixth consecutive week by another 724,200 tonnes (t) or 0.8% w-o-w to 96.4 mnt.

Efforts by steelmakers to accumulate iron ore will continue this month, which will help underpin ore prices. However, mills will become increasingly cautious about the quantities they stockpile, given that most are still suffering financial strains and their production controls mean they need less iron ore. For this reason, prices of imported iron ore are expected to fall late in January after some initial rises.

Note: This article has been written in accordance with a content exchange agreement between Mysteel Global and BigMint.