China: Spot iron ore prices continue to fall, likely to remain under pressure in near term

Spot prices of iron ore in China continued to fall d-o-d due to weak seaborne liquidity and decreasing steel margins. Benchmark Fe 62% fines prices moved down by $2.35/t to $91.4/t CFR China on 20 October, 2022 Prices have corrected by $10/t since mid-September, 2022.

As per a few reports, falling steel margins, and logistical challenges are keeping the China market down. The supply side of iron ore is stable, but low demand is impacting the market. The prices are likely to remain under pressure owing to the following factors:

• Pig iron production may decline:  As per reports, China’s cumulative pig iron production in January-August 2022 was 582 mnt, down 4% y-o-y. Hot metal output was predicted to rebound strongly in September. However owing to weak demand for steel, there has been limited production during summer. In the fourth quarter, hot metal production is expected to fall owing to restrictions in Shanxi and Hebei regions. Other regions may also receive production cut advisories soon.
• Environmental protection curbs may impact steel output: According to seasonal trends, steel demand may fall in November-December in order to ensure air quality. Various administrative production restrictions have been imposed. Hot metal production is expected to decline due to winter production cuts and falling steel margins. The average daily production of molten iron in the fourth quarter will drop from the current 2.4 million tonnes (mnt) to below 2.2 mnt. There will be a 5% increase y-o-y, and a m-o-m decrease of more than 10%.
• Iron ore supplies remain supported: In August 2022, China’s imported iron ore volume was 96.2 mnt, up 5.4% m-o-m and down 1.3% y-o-y.
• Port inventories in China likely to increase:  The inventory of imported iron ore in 45 ports around the country was 129 mnt as of October 14, around 4.27 mnt down y-o-y. However, when demand falls and supplies recover after November, inventories are expected to rise gradually. In the fourth quarter of last year, the accumulated inventory was around 22 mnt. By the end of this year the port inventory is predicted to reach around 150 mnt.

It is also expected that steel demand may not be promising and this will lead to drop in iron ore demand too. Hence, prices of iron ore may also fall.