Posted on 31 Mar 2022
Prices of iron ore derivatives in China rallied to recent new highs on Wednesday, reflecting the buoyancy of market sentiment, even though ore market fundamentals remain mixed.
The most-traded iron ore futures contract on the Dalian Commodity Exchange (DCE) for September delivery, for example, climbed to as high as Yuan 898/dmt ($141.1/dmt) in Wednesday afternoon trading – nearly a seven-month high – before finally closing the daytime session at Yuan 895/dmt, up another Yuan 26/dmt or 3% from Tuesday's settlement price.
"The market now expects a strong recovery in iron ore demand in the near future, as steelmakers nationwide will gradually ramp up production once it is clear that the new COVID-19 outbreak has been brought under control," a Shanghai-based analyst commented.
"Today for example, we learned that the disruptions to road freight services in Tangshan (North China's Hebei) have gradually eased, so that the impact of the transport headaches on local steelmakers' raw materials deliveries and blast furnace operations will finally lessen. This will soon lead to improved iron ore demand as local mills need to replenish their depleted stocks of feeds to the normal levels they were at previously," he added.
Tangshan steelmakers had to consume more of their in-house stocks of iron ore, coal and auxiliary materials during the citywide traffic control period introduced by the local government to contain the epidemic spread, as reported.
Moreover, market participants are also hoping for additional policy support from the central government to shore up the national economy, and assistance to steelmakers now battling the COVID-19 surge, the analyst also observed, a hope that also gave a boost to ferrous futures markets generally on Wednesday.
Nevertheless, some market sources remain skeptical about any remarkable uptick in iron ore prices in the future.
"Raw materials prices such as iron ore, coke and coking coal are all at relatively high levels and are heavily squeezing the mills' finished steel margins when domestic steel prices are relatively weak amid the static demand from end-users," a Zhejiang-based iron ore trader noted. "If the thin margins continue, the mills' willingness to produce might weaken, which in turn would depress raw materials prices," he told Mysteel Global.
Policy risks also gradually intensify when ore prices undergo a sustained and significant rally, he warned. "The stability of commodity prices is of paramount importance to central government, so as to ensure the country's economy grows steadily this year. If iron ore prices experience a further substantial uptick - at a time at odds with real demand and supply fundamentals - it is possible we'll see the government implement more measures to calm the markets," he added.
In fact, in response to the recent marked uptick in iron ore futures prices, late on March 28 DCE announced some measures to cool trading activity which included lifting the speculative trading margins for May and September iron ore contracts, and raising the trading fees for the September contract effective from March 30, as reported.
Source:Mysteel Global
