Posted on 22 Apr 2021
China’s prices for imported iron ore have soared to 10-year highs in response to bullish market sentiment, with Mysteel SEADEX 62% Australian Fines, for example, hitting $187.85/dmt CFR Qingdao on April 20, a new record since March 2011.
On April 20 too, the most-traded iron ore contract on the Dalian Commodity Exchange (DCE) for September delivery climbed for the fourth consecutive session, rising by Yuan 38/dmt or 3.6% from the previous settlement price to close the daytime trading session at Yuan 1,100/dmt, according to DCE’s data.
“Market sentiment is rather bullish now,” a Shanghai-based iron ore trader commented. “From my view, the high steel prices and steel margins are the major drivers for the rise in iron ore,” he said.
According to him, the domestic steelmakers are enjoying incredibly healthy steel margins now, with the profits on some types of finished steel busting through Yuan 1,000/t. In this context, the higher raw materials prices are not a big issue for the mills, when they are driving their operations as hard as possible. “In fact, the present uptick in iron ore is just to catch up with the previous round of rises in steel prices,” the analyst added.
Another Shanghai-based iron ore analyst with a futures company also cited the steady iron ore demand from domestic steel mills currently. “Specifically, steelmakers are consuming more medium- to higher-grade iron ore products – spurred by the improved steel margins and faced with increased scrutiny regarding their smokestack emissions,” he noted. “All this at a time when supplies of such kinds of iron ore products are just stable. So why do iron ore prices have to dip?” he asked.
Mysteel’s latest data also verified the domestic steel mills’ hard running recently, with blast furnace capacity utilization among the 247 domestic steelmakers regularly surveyed climbing for the second week over April 9-15, rising by another 0.72 percentage point to 87.67%. This was despite many steel mills in Tangshan still marking time under tough production restrictions, as reported.
The iron ore analyst also noted that the boom in iron ore demand globally, amid the recovery in steelmaking activity elsewhere in the world, is also serving to bolster iron ore prices. “The rise in ore demand from steelmakers globally may tighten overall iron ore availability – which would then impact on China’s iron ore market where supply may not be as ample as it was,” he said.
Amid the price surge, iron ore trading in China’s spot market was also relatively lively over the past several days, which in turn lent support to spot prices, Mysteel Global observed.
“As the five-day Labour Day holiday (over May 1-5) is approaching, some steel mills have to procure additional ore quantities to ensure they can continue hot metal production uninterrupted during the period,” a Shandong-based iron ore trader remarked, adding that recently too, iron ore traders’ participation in speculative trading has turned active.
Normally, iron ore trading ceases temporarily during official Chinese holidays, Mysteel Global noted.
Some market sources also indicated that bullish sentiment for iron ore futures derives from the fact that currently, China’s central government has yet to announce any further detailed measures on cuts to crude steel output this year, only that 2021 output should not pass the 2020 total of 1.065 billion tonnes.
Nevertheless, for the time being, China’s related government bodies have been alerted to the recent sharp surge in bulk commodity prices, including steel and iron ore.
Just on April 19, Meng Wei, spokesperson of the country’s National Development and Reform Commission (NDRC), commented at a press conference that “as for industrial goods, the prices will be stable in general and in the coming months, as China has sufficient production capacity, abundant supply, and enough market competition”.
But a second Shanghai-based iron ore trader wasn’t convinced. “From my personal view, the current market is a little crazy. Sure, the fever might calm down slightly after the momentum reaches its peak but for now, I’ve no idea when that might be,” he admitted.
Source:Mysteel Global
