Posted on 30 May 2022
Buoyancy market sentiment saw China's market for iron ore derivatives end the week strongly on Friday, with the most-traded iron ore futures contract on the Dalian Commodity Exchange for September delivery closing the daytime session at Yuan 863.5/dmt ($128/dmt), or up 4.4% or Yuan 36.5/dmt from Thursday's settlement price.
Coincidently, the Dalian exchange's closing price was also Yuan 36.5/dmt higher than the settlement price last Friday, flattening out the fluctuations witnessed over several days previously, Mysteel Global notes.
"Market sentiment for iron ore has improved slightly," a Shanghai-based analyst with a futures company commented. "Above all, we have seen more positive signals that the central government will provide a fillip to the domestic economy that should then benefit industrial activities," he noted, suggesting that some recovery in steel demand is possible going forward.
Meanwhile, the supply and demand fundamentals for iron ore have also bolstered ore prices, the analyst also remarked.
"You can see that iron ore demand in the domestic market remains generally firm, as most blast-furnace steel mills are maintaining stable production – even when their finished steel margins are rather thin – while on the other hand, you can see the stocks are declining," he observed. "Under this backdrop, it's hard to see iron ore prices dropping."
According to Mysteel's latest sampling of 247 steel mills nationwide, on average these produced 2.41 million tonnes/day of hot metal over May 20-26, edging up for the fifth straight week by another 13,500 t/d on week.
By May 26, total imported iron ore stocks at China's 45 ports had declined to 134.5 million tonnes (around a seven-month low) after falling for the ninth consecutive week by another 1 million tonnes or 0.8%.
"In fact, the low or even negative finished-steel margins have dampened some steelmakers' production willingness, but at present blast-furnace steel mills are showing more resilience in response to such a tough period than are some electric-arc furnace steel mills," the analyst acknowledged. "Steel scrap prices are still relatively high, especially compared to hot metal costs," he added.
However, other market sources cited concerns about domestic steel demand in the near future, as consumption in some areas in southern China is being dampened by the frequent and heavy rainfalls associated with the seasonal monsoons that began this month. Consequently, the iron ore market will still need to observe the trend in finished steel margins and how steelmakers are responding, in terms of production.
Source:Mysteel Global
