China's iron ore prices to remain high in near term

Better fundamentals and the relatively bullish market sentiment are keeping Chinese iron ore prices strong for the time being, according to market sources on Friday.
By March 10, Mysteel SEADEX 62% Australian Fines had stayed above $150/dmt for a week, and by that day were standing at $157.95/dmt, or up $5.9/dmt on week. The index had even hit $160.85/dmt CFR Qingdao on March 8, the highest since last August 16.

"For now, we are relatively optimistic about iron ore demand in the near future," an iron ore trader in East China's Shandong province commented. "We expect that steelmakers will resume or lift their production in the second half of this month, especially after the present strict production curbs imposed on mills in Hebei (North China) are gradually eased with the close of the Winter Paralympic Games on March 13," he explained.

Mysteel's latest data showed that the blast furnace (BF) capacity utilization rate among the 247 steel mills under Mysteel's regular survey reversed down to 79.78% over March 4-10 (after two weeks of inclines), easing by 1.71 percentage points on week. The dip in the run rate reflected the restrictions that some mills in North China have been ordered to obey on their operations as part of pollution control measures.

"Consequently, steelmakers will definitely try to accumulate more raw materials stocks before they lift their output," the trader added. "But for steel mills in Tangshan, even though their iron ore stocks are rather low now, we're hearing that they will probably resume production first before opting to replenish ore stocks."

Another iron ore trader in Qingdao, East China, was also betting on iron ore demand from steelmakers improving when the mills can ramp up their production. "I can't see iron ore prices undergoing any remarkable drop in the near future, despite the issues of margins and stocks," he said. The mills' margins on finished steel - decided by steel demand and prices, which are both still relatively weak - may limit the room for raw mats prices to rally, and at the same time, iron ore stocks at ports are also at a relatively high level, he explained.

By March 10, total imported iron ore stocks at China's 45 ports were still around 157.1 million tonnes, still a near four-year high, even though the volume had thinned for the third week by another 1.4 million tonnes on week, according to Mysteel's survey.

The Qingdao trader also remarked that over the past several weeks some large steel mills in East China's Shandong province have emerged from curbs and have already ramped up their production, while some small- to medium-scale mills have plans to boost their production in coming weeks.

"At present, iron ore prices do have support from a near-term demand recovery," a Shanghai-based iron ore analyst echoed.

In addition, iron ore is a product with a "strong financial feature" and is prominent in the international trading market, he observed, so iron ore prices are more readily influenced by the movement in prices of other bulk commodities.

"You can see that recently, the prices of crude oil, nonferrous products, and steel in overseas markets have strengthened considerably, pushed by fears about possible supply disruptions caused by the Ukraine-Russia conflict, and for now, it is still hard to predict when the conflict and supply concerns will ease," he remarked. "If bulk commodity prices remain high, it will be hard to imagine iron ore prices diving," he added.

Written by Victoria Zou, zyongjia@mysteel.com

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