China's iron ore prices likely to lose strength in late Dec

• Ore availability may rise, demand may dip
  
  
• Cold weather to impact construction activity
  
  

Mysteel Global: The fundamentals for China's market for iron ore are expected to weaken this month, as ore availability may increase to some extent while demand for the feedstock will gradually decline in line with reduced production among steelmakers, according to Mysteel's latest monthly report. In this scenario, imported iron ore prices in China are likely to retreat this month after some initial rises, the report forecasts.

Last month, Chinese prices for imported iron ore rose mildly throughout the month, with the Mysteel SEADEX 62% Australian Fines index inching up by $1.7/dmt m-o-m to $103.52/dmt CFR Qingdao by 29 November, for example.

November usually marks the onset of a traditional low season for steel consumption in winter that impels steelmakers to cut production, but this year mills remain active in producing thanks to relatively healthy steel margins.

The daily hot metal output of the 247 Chinese blast-furnace (BF) steelmakers under Mysteel's regular tracking averaged 2.35 million tonnes/day last month, higher than October's average of 2.34 million t/d, Mysteel's tracking showed. The on-month rise in average output, albeit small at 0.2%, is actually a substantial improvement compared to the 3.1% decline seen during November last year.

Despite being resilient last month, demand for iron ore from domestic steelmakers will shrink during the remainder of this month, the report warned. Demand provided the main support for ore prices during the past month, Mysteel Global notes.

For one thing, with the colder weather beginning to impact outdoor construction activities, the dip in steel demand from end-users has already led some mills to rein in their production by banking furnaces for maintenance. The report suggests that daily hot metal production among the 247 sampled BF steelmakers will decline slightly to an average of 2.33 million tonnes/day in December.

For another, mills appear to show only limited appetite for ore stockpiling this year for winter production, usually a normal practice at this time of year to avoid raw material supply disruptions, as reported.

In contrast to the weakness in ore demand, China's overall iron ore supply is seen loosening this month, according to the report.

Iron ore shipments from global ore miners in December are expected to rise on month, as overseas miners- aiming to meet their quarterly or annual delivery targets - will seize the opportunity to beef up ore shipments before year's end, the report pointed out. "Iron ore imports for the current month are estimated at a high level of about 1 billion tonnes," a Shanghai-based iron ore analyst said. Although November import data isn't yet available, the October total reached 1.04 billion tonnes, Mysteel Global notes.

Therefore, imported ore inventories at Chinese major ports are expected to rise slightly this month after November's decline, as a combined result of higher rates of iron ore arrivals at ports and lower discharge rates, he remarked.

Regarding imported iron ore prices, even if the mills' restocking demand is limited this year, it will still lend some support to iron ore prices, the report suggested, but once the mills gradually secure sufficient stocks, prices will face some downside pressure as overall supplies of the feeds remain excessive, it noted.

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