China: Imported iron ore prices decline to over two-year low

Spot prices of iron ore in China continued to fall amid poor liquidity with most market participants remaining cautious about buying. Benchmark Fe 62% fines prices moved down by 5.71% month-on-month to $82.5/t CFR China on 27 October, 2022, dropping to over two-year low.

Comparatively, local iron ore prices in China have marginally decreased but are still mostly constant. Prices of Fe62% concentrates were at RMB 798.02/t on 27 October, down 0.53% m-o-m, while prices of Fe65% concentrates were RMB 892.39/t, down 0.56% m-0-m.

Prices are inching down towards the low point of RMB 879.33/t recorded on 6 December, 2021 for quite some time, and they may fall below that level if the market continues to drop.

Factors driving down global iron ore prices 

• Shipments from leading miners remain on higher side: Shipments of iron ore in Q4CY’22 are projected to remain high, based on the big four miners’ guidance and as the South African port strike ends supply is likely to rise.
• China’s steel capacity utilisation remains subdued: While China’s capacity utilisation and iron ore concentrate output continued to decline as a result of poor steel demand and constrained steel profitability, domestic iron ore mines, which typically operate at high costs, opted to stay in the monitoring mode. However, some mines intend to suspend operation for maintenance since the market is expected to be in its off-season with an expectation of seasonal decline in demand, making a recovery in domestic iron ore supply doubtful.
• Increase in China’s domestic iron ore output:  China’s iron ore concentrates output is also expected to increase by 100 million tonnes (mnt) under the “cornerstone plan,” which aims to increase domestic iron ore output to reduce the country’s high import dependency.
• Narrowing margins of Chinese steel mills: Steel products such as rebar, HRC and CRC have all been losing money since the end of August, and mills are grappling with costs without profits. As the traditional “peak season” approaches its end, previous high expectations have fallen short, and market confidence is rapidly decreasing. At this moment, winter-related production cuts and Europe’s ongoing energy crisis are putting pressure on production, adding to pessimistic sentiments.

Future expectations

If weak demand continues, mills will have no choice but to reduce output in order to boost prices and demand profits from upstream. However, this will not last long because downstream users will also bid lower, potentially forming a downward cycle.

Overall, steel supply chain can only recover if steel demand grows in areas in the infrastructure and real estate segments, for instance, which is unlikely to happen any time soon.