Where are global iron ore prices headed for rest of CY'21?

By the end of July, the global iron ore prices had fallen below $200/dmt though still at a relatively high level of $180/dmt CFR, as China's demand had eased by moderately and the domestic steel prices had recovered, which was sufficient to offset the adverse impact on rising global iron ore supplies.

The seaborne iron ore prices appeared rather resilient even in the most turbulent May ever since 2016 in China's domestic steel market when Mysteel SEADEX 62% Australian Fines fell but only $55.55/t by May 26 from its record high of $233.7/dmt CFR Qingdao as of May 12.

During the similar period, China's national HRB400E 20mm dia rebar price slumped Yuan 1,331/t ($205.8/t) as of May 27 from Yuan 6,348/tonne as of May 12, also the highest since Mysteel commenced the assessment on March 3 2011.

China's iron ore and steel prices over January 2020-July 2021

Market: chances are slim for iron ore prices to bounce back

Since after the grand celebration on July 1 in China, the country's domestic steel prices have been recovering on the overall market expectation on Beijing's wide-range execution of the steel output cuts so as to achieve a lower steel production than 2020 by the end of 2021, and the steel output cut will have to be harsh, as in the first half year, China's steel output soared 11.8% on year to 563.3 million tonnes.

This will surely lead to less iron ore demand and thus a possible downtrend in the raw material prices for the rest of this year. Will that be the case or will the iron ore price still stand the chance for rebound together with the strengthening in domestic steel prices?

Crude steel output in China

The increase in iron ore supply will also complicate the picture, adding more downward pressure, even though the seaborne iron ore shipment from the top four iron ore miners gained just 2.3% on year over January-June, and China, as the largest iron ore consumer, saw its iron ore imports up similarly by 2.6% on year to about 561 million tonnes in H1.

World's top four miners' iron ore supply in Q1

Note: all on a 100% basis, source: company sharing

Meanwhile, seaborne iron ore market sentiment seems to be rather bearish, hammered seriously by the fact that Chinese steelmakers will be obliged to rein in their production for the rest of 2021, and it will hurt iron ore demand.

"By the looks of the steel market in China, iron ore prices will unavoidably come down, we have already seen some $50/dmt declines in two months, will it be possible for us to see $100/dmt towards the end of this year?" a U.S. ferrous market analyst commented.

"It is getting real that China will cut down on its crude steel output, and we can see that the port inventories have been piling up though not fast, so iron ore consumption has been declining, while supply will grow, such as from Vale, now that it is reclaiming the lost tonnage from the accident gradually, all these will be pressure on iron ore prices," he added.

The concern on iron ore demand decline is real, as so far many Chinese provinces such as Jiangsu, Shandong, Anhui, Jiangxi, Shanxi, Guangdong and Guangxi have confirmed their determination to join Hebei in steel output trimming for the rest of the year, and many steel mills have carried out the restrictive measures by either halting facilities for maintenance or lowering the capacity utilization rate.

Mysteel's survey among China's 247 steel mills, for example, showed that their blast furnace capacity utilization dipped to 85.73% on average over July 30-August 5, having much lower than the previous high level over 90% or down 9.02 percentage points on year.

Many Chinese steel mills' iron ore procurement pace have been slowing down too, as suggested by Mysteel's survey, with theinventories of imported iron ore at 247 steelmakers nationwide in all forms including the volumes at steelworks, port stockyards and on the water dipped to 107.67 million tonnes, or a low since mid-July 2020.

Spot trading in both the seaborne iron ore and ports for inventories waned remarkably and some iron ore traders had been actively offloading stocks on hand at lower prices, according to market sources.

An iron ore procurement official from a Henan-based steel mill in Central China also believed the raw material price to go south, though it is hard to say where is the end.

With such an anticipation, "we have no plan to stock up additional tonnage in house," he said, adding, "demand is the tipping point for the iron ore price, but its demand aligns with steel demand, which is sluggish now and I am not sure either whether it will revive much after the slack season, as macro-economic data such as real estate and manufacturing do not paint a positive future."

A Shanghai-based iron ore analyst also had concerns on the overseas iron ore demand in the future. "The global pig iron output had slowed down since June. Now there is a resurgence of COVID-19, thus the overseas iron ore demand seems have hit its ceiling too," he said.

A Shanghai-based iron ore trader, though, appeared comparatively optimistic about the iron ore demand and prices in the near term over August-September.

"We still can expect some recovery in steel demand when the off season ends, though in the longer-term as for the fourth quarter or until early 2022, iron ore prices will probably be under greater pressure with shrinking demand and growing supply," he also added.

Written by Victoria Zou, zyongjia@mysteel.com

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