Posted on 13 Jun 2022
The supply-demand fundamentals for imported iron ore in China are still relatively healthy, ensuring that prices continue to hover high and despite the pressure of policy risks, according to market sources on Friday.
Illustrating this, on June 6 the most-traded iron ore futures contract on the Dalian Commodity Exchange (DCE) for September delivery had climbed to Yuan 948/dmt, a ten-month high, according to DCE data. Over subsequent days, the contract seemed content to fluctuate around that level, though by the end of the daytime session on June 10, the contract closed at Yuan 914.5/dmt.
In the spot market, Mysteel PORTDEX 62% Australian Fines in Qingdao had rallied to Yuan 1,006/wmt ($151.1/wmt) FOT and including 13% VAT on June 7, a new high since April 18. However, the index then eased slightly to reach Yuan 988/wmt by June 10.
"From what I'm seeing, there is a high possibility of a price correction but it's hard to say how significant that would be," a Zhejiang-based analyst with a trading company commented. "The likelihood of a correction rests mainly on whether the central government will do something to crack down on suspicious price speculation and other activities that threaten to destabilize the market and drag down prices as a result," he explained.
China's central government has been closely monitoring iron ore market trends since prices skyrocketed in early 2021, especially in the first half of May, as reported. Since then, warnings from major government bodies such as the National Development and Reform Commission (NDRC) seem to have calmed the frantic market sentiment and violent price fluctuations, Mysteel Global observed.
In February when iron ore prices had rebounded to a relatively high level, NDRC had held a series of meetings with related market entities, including price information providers, commodity exchanges, major iron ore ports and trading companies, to determine the actual market situation, as Mysteel Global reported. This also highlighted the government's resolve to ensure market stability, as well as its determination to strengthen market supervision and crack down on any "irregular and illegal" operations.
Xu Xiangchun, Mysteel's senior analyst, believes the government's monitoring of the market and its warnings regarding prices have helped to restrain excessive price speculation. "You can see this is having an effect because prices are just hovering at current levels," Xu said, "and longer term, China's general policy to cap the country's crude steel output this year cannot support any substantial surge in iron ore prices."
Recently, Shandong and Jiangsu provinces in East China seem to have quietly started making plans to ensure their crude steel output this year is lower than last year, Mysteel noted.
Going forward, iron ore futures prices rising past Yuan 1,000/dmt might trigger moves by the government to influence prices, the Zhejiang-based analyst, even though currently, actual iron ore demand and supply fundamentals are not so bad.
"The operations of blast-furnace steelmakers remain largely stable, and if you look at port inventories, iron ore supply is relatively weak, which should support ore prices to some extent," he noted.
According to Mysteel's latest data, blast furnace capacity utilization among the 247 steel mills sampled nationwide climbed for the seventh straight week over June 3-9 to reach 90.14%. At the same time, the total of imported iron ore stocks at China's 45 ports had dropped by a notable 3.9 million tonnes on week to 128.5 million tonnes by June 9, making for the eleventh straight on-week dip and a new low since last mid-August last year.
Source:Mysteel Global
