- Shrinking mill profitability, steel production cuts to pressure ore demand
- Simandou ramp-up, seasonal uptick in ore exports may lead to oversupply
Mysteel Global: Chinese imported iron ore prices ended the first half of this year lower on balance, despite a brief rebound in the middle of the period. On 30 June, Mysteel SEADEX 61% Australian Fines was assessed at $98.25/dmt CFR Qingdao, lower by $5.85/dmt from 2 January. Looking ahead to the July-December half, China’s iron ore market is expected to weaken further amid rising supply and falling demand, with Mysteel’s latest market outlook forecasting an overall supply surplus worldwide of 30 million tonnes (mnt, on an iron-unit basis) for H2CY’26.
H1 review: Supply outpaces demand
The supply-demand divergence was already evident during this year’s January-June half. Global iron ore shipments to all destinations totalled 817 mnt during H1, higher by 33.5 mnt or 4.3% on year, according to Mysteel’s tracking. China, the world’s largest seaborne iron ore buyer, saw arrivals at the 47 major ports tracked by Mysteel reach 676 mnt during the six months, an increase of 43.2 mnt or 6.8% from a year earlier.
However, iron ore consumption failed to keep pace with supply inflows, as hot metal production at Chinese mills slowed under the dual pressures of environmental production curbs during Q1 and ongoing steel-capacity swap regulations. Mysteel’s tracking of the 247 Chinese steel mills it regularly checks showed that their total hot metal production during January-June reached 410 mnt, down 2.5 mnt or 0.6% from the same period last year.
In other words, H1 supply growth outpaced demand contraction by a wide margin, with port inventories largely absorbing the resulting surplus. By 25 June, total stocks at the 47 major Chinese ports had reached 175.4 million tonnes, up 4.9% from the beginning of the year.
Geopolitical disruption: A temporary lift
Although iron ore prices generally tracked downward during H1 amid weakening fundamentals, they experienced temporary rallies during March-May amid escalating geopolitical tensions in the Middle East.
Soaring oil prices triggered by the US-Iran conflict pushed up iron ore production and shipping costs through higher energy expenses and elevated freight rates, causing ore prices to rebound strongly. Yet, in recent months, as the intensity of the conflict has eased and oil prices have retreated, iron ore prices have pulled back amid dwindling cost support.
H2 outlook: Supply to expand, demand to soften
Looking ahead, iron ore supply is expected to pick up pace during the coming six months. Global iron ore shipments typically see a seasonal uptick in the second half, while capacity ramp-ups at projects in non-mainstream countries such as Liberia and Venezuela are set to bring additional volumes to the global market. In particular, the Simandou project in Guinea aims to accelerate its ramp-up since the end of the present July-September quarter, with its shipments to exceed 20 mnt this year.
On the demand side, China’s iron ore consumption is likely to stay subdued. The most immediate concern lies in shrinking mill profitability, with Mysteel research showing that at present, nearly half of domestic steel mills are operating with negative margins. A large-scale production cut is likely should losses spread, the report notes.
Compounding the pressure, domestic steel consumption is softening with the onset of the summer slowdown among end-users, while steel exports face growing headwinds from rising trade barriers overseas. Collectively, these factors point to a gradual decline in mill production.
With iron ore supply accelerating and demand from China softening, Mysteel forecasts an overall iron units supply surplus of 30 mnt worldwide for H2. Chinese mills are expected to remain cautious in restocking, and rising inventory backlogs held by traders could place further downside pressure on iron ore prices.
Mysteel SEADEX 61% Australian Fines is projected to trade within a range of $88-105/dmt during July-December, in comparison with the range of $97-113/dmt during the first six months. The annual average for this year is estimated at around $100/dmt, below the average of $104/dmt during H1, according to the report.
Note: This article has been published in accordance with a content exchange agreement between Mysteel Global and BigMint.
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