China's iron ore prices likely to drop

After climbing to a relatively high level in the first quarter of this year, China's iron ore prices will possibly see a downward trend going forward, commented futures companies at a recent meeting organized by China's National Development and Reform Commission (NDRC) and related authorities to analyze the iron ore market, prices, and futures trading.

The futures companies' estimate was drawn upon market fundamentals of iron ore which are expected to loosen after Q1, as the global supply of iron ore will grow gradually while domestic scrap supply will see a steady increase, according to a post on the NDRC's official WeChat account on the night of April 4.

The price level of iron ore in China may be significantly lower during the second half of this year, the companies said.

In the first quarter of this year, the strengthening in China's iron ore prices was contributed by multiple factors including a bright market expectation, according to the post.

In fact, iron ore prices extended the uptrend they had adopted since last November and performed strongly overall so far this year, with the market being largely dominated by a hope of revival in steel and iron ore demand during March-April, China's spring peak season for steel consumption, Mysteel Global noted.

Prior to this meeting, China has tightened its supervision on the domestic iron ore market and curbed the soaring iron ore prices to some extent. For example, the Dalian Commodity Exchange (DCE) in late February imposed a trading limit on some iron ore futures contracts to tame the overheated iron ore prices, as reported.

Also, the bullish sentiment that prevailed in China's steel and iron ore markets soured somewhat recently, as the recovery in end-users' demand so far was not as substantial as the market had expected, Mysteel Global understood.

As a result, Mysteel SEADEX 62% Australian Fines once strengthened to $133.4/dmt CFR Qingdao on March 15 before it fluctuated lower to $121/dmt CFR Qingdao on April 4 - yet still presenting a gain of $3.65/dmt compared to the price on January 3.

"This was the NDRC's another try to further cool down iron ore prices, and more importantly, to protect domestic steelmakers' steel margins that would generally be eroded by high prices of raw materials including iron ore," a Shanghai-based market watcher commented.

In addition, the meeting required futures companies to operate legally and to analyze iron ore market comprehensively, accurately and objectively in releasing reports, and stressed that price play-up is not allowed, according to the NDRC's post.

The NDRC highlighted that it will continue to work closely with relevant authorities to monitor iron ore market, strengthen supervision and maintain the normal order of the market.

Following the NDRC's post, the DCE's most-traded iron ore futures for September delivery closed the morning session of April 6 at Yuan 792.5/dmt ($115.2/dmt), falling by Yuan 8.5/dmt or 1.06% from the settlement price on April 4, the exchange's data showed.

Written by Lea Li, liye@mysteel.com

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