DCE iron ore futures dip 6.5% as gloom pervades

Posted on 29 November 2021

Pessimism about iron ore demand prevails once again in China's commodity futures market, with the most-traded iron ore futures contract on the Dalian Commodity Exchange (DCE) for January 2022 delivery ending its five-session rally on Friday by falling by 6.7% or Yuan 41/dmt ($6.4/dmt) from Thursday's settlement price to close the daytime session at Yuan 575.5/dmt, DCE data shows.

 

"Steel mills in Tangshan (in North China's Hebei) have again been instructed to comply with another round of emergency production restrictions, and this will definitely impact iron ore demand in this area," a Beijing-based iron ore trader commented.

Starting on the afternoon on November 24, steelmakers in Tangshan were ordered to cut back operations on their sinter plants, blast furnaces, shaft furnaces and other facilities to allow the local government to tackle a sudden rise in atmospheric pollution over the city, as reported.

"But looking further ahead beyond the emergency restrictions, the market is also concerned about the decline in iron ore demand before and during the Winter Olympic Games period," the trader also noted, "so it's no surprise that the iron ore futures prices turned down today."

The Winter Olympics will begin on February 4 in Beijing and in towns in the neighbouring Hebei province, where steelmakers are already being warned of pending production curbs to ensure that skies are clear for the sporting events, as Mysteel Global has reported.

An official with a Hebei-based steel producer acknowledged on Friday that there's a strong possibility that his mill's operations will be curtailed for the duration of the Games period, though the exact duration and severity of the curbs have yet to be decided. The Winter Games proper will be held across three zones, namely Beijing and Yanqing and Zhangjiakou in Hebei province, and will run until February 20, Mysteel Global notes.

"Over the past several days the market, especially some speculators, had traded on the logic of steelmakers resuming production. But to be honest, with the winter production curbs and given the frequent emergency restrictions on steel mills in North China during the winter season, it's hard to see any substantial production resumption among mills in this area," the trader added.

Mysteel's latest data showed that the blast furnace capacity utilization rate among China's 247 steel mills under Mysteel's survey had eased for the sixth straight week by another 0.11 percentage point over November 19-25 to 75.23%, or a new low since late March 2018.

Other market sources noted too that sufficient iron ore supplies at China's ports had weighed on iron ore prices when demand for such stocks remained feeble.

By November 25, total inventories of imported iron ore at China's 45 major ports under Mysteel's survey had grown for the ninth week by 1.5 million tonnes on week to around 152.5 million tonnes, or a new high since August 2018, mainly as more carriers had arrived and unloading volume had grown, while daily discharge rates at these ports dropped.

"Consequently, the rally we saw earlier this week in iron ore prices might be more about the sentiment, as I can't see any marked surge in ore prices in the near future given the actual supply-demand fundamentals for ore," a Shanghai-based iron ore analyst with a futures company commented.

Source : Mysteel Global