What to expect from Chinese iron ore market in near term?

Overall speaking, it is still recommended to trade iron ore prices from a bullish perspective. In terms of elasticity between varieties, iron ore is stronger than steel but weaker than coking coal. The main drive for this round of rise could be maintained as long as the production is still expected to increase. The most direct observation point is whether the destocking trend of plates/rebar will be interrupted during the production increase process. Extra attention should be paid to the export control of plates steel.

Supply-side: As long as there are no unexpected events and the price performance has not touched the production costs of each mine, it has never been the main factor affecting iron ore prices - so far, iron ore supply has remained within expectations. In mid-to-early April The phased reduction in mine shipments has gradually returned to seasonal neutral levels.

Judging from the updated March data, overseas crude steel production in March continues to maintain a month-on-month increase, and the comparison of domestic and foreign crude steel production remains at a level of around 1.21. That is to say, under a relatively conservative view of domestic demand, the proportion of mine shipments to China this year is expected to be lower compared with last year.

Demand-side: Mainly in two aspects: First, molten iron production. At present, the output of molten iron has reached around 2.3 million tons as scheduled. However, judging from the fact that the HRC and rebar are still in the destocking trend, and even the rebar is still at the high-speed destocking status, the subsequent steel output (i.e., the output of molten iron) will continue to increase. Unless the fundamentals of steel itself are significantly threatened, there is room for further growth, and the possibility of exceeding expectations (more than 2.35 million tons) cannot even be ruled out.

As for the recent continued convergence of the price difference between scrap steel and hot metal, on the one hand, the relative cost performance of scrap steel is still significantly lower than that of iron ore. On the other hand, with the significant increase in the arrival of scrap steel from bases & steel mills, the scrap steel price fell into a tight situation in the early stage. It is gradually easing and will not become an important factor hindering the rise of molten iron.

Second, the purchasing willingness of steel mills. The compression of profits during the price rise and the current high year-on-year iron ore inventory usable days in ports and steel mills have resulted in the fact that the actual iron ore spot transaction volume has not rebounded significantly during the recovery of prices and molten iron production. This is one of the important reasons for compressing the iron ore basis difference during the round of rebound. This will limit the upward flexibility of prices to a certain extent and is expected to improve after the iron ore started to destock.

Overall speaking, it is still recommended to trade iron ore prices from a bullish perspective. In terms of elasticity between varieties, iron ore is stronger than steel but weaker than coking coal. The main drive for this round of rise could be maintained as long as the production is still expected to increase. The most direct observation point is whether the destocking trend of plates/rebar will be interrupted during the production increase process. Extra attention should be paid to the export control of plates steel.

Note: This article has been written in accordance with an article exchange agreement between Horizon insights and BigMint.