Mysteel Global: The fundamentals for imported iron ore in China are expected to weaken this month, with supplies on the rise for seasonal reasons while demand is on track to fall back, according to Mysteel’s latest monthly report on the commodity. As a result, prices for imported iron ore are likely to lose more ground this month, the report predicts.
Last month, prices for imported iron ore first rose and then retreated as end-May approached. For example, Mysteel SEADEX 62% Australian Fines index had hit a six-month high of $102.35/dmt on May 15, before pulling back to $96.75/dmt CFR Qingdao on May 30, with the overall decrease throughout the month being small at $1.1/dmt.
The initial rise in ore prices last month mainly reflected the easing of US-China trade tension after the two countries agreed to temporarily cut tariffs on each other’s goods, as reported. However, as the hot and rainy weather in summer started to impede construction work in many parts of China, tepid demand for steel from end-users translated into a poor appetite for steelmaking materials among mills, causing ore prices to drop rapidly, the report points out.
Looking ahead to this month’s market dynamics, the report predicts that weak demand for iron ore during the summer lull will become more prominent, noting that numerous signs are emerging that domestic mills will continue to rein in their production.
First, hot metal output among the 247 Chinese steelmakers under Mysteel’s tracking had already peaked in early May. Though the downtrend has been mild since then, the slide is expected to continue in June as production interest among mills will remain suppressed by the poor consumption of finished steel, the report suggests.
Meanwhile, the number of profitable steelmakers also started to decline in late May, raising the likelihood that more mills will schedule maintenance on their blast furnaces in response to losses.
“The speculative demand for iron ore among traders will also be subdued, as expectations for iron ore oversupply will prompt them to focus on selling the tonnes they have at hand to avoid excessive inventories,” an iron ore analyst based in Shanghai commented.
In contrast to the softening demand, iron ore supplies in China are expected to rise further in June, with miners in Australia rushing to ramp up their shipments in the final month of their fiscal year. The volume of iron ore dispatched by global ore miners averaged 4.6 million tonnes/day in May, higher by 7.5% on month and by 1.7% on year, according to Mysteel’s tracking.
Stocks of imported iron ore at Chinese ports also dropped steadily in May due to still resilient demand for ore among mills wanting to keep their hot metal output high. But for this month, the stocks are anticipated to accumulate slightly, as reduced hot metal production at mills means that they will slow iron ore haulage from ports, according to the report.
Given the weakening fundamentals, prices for imported iron ore will continue to soften this month. The report predicts that the average price of Mysteel SEADEX 62% Australian Fines index will hover around $96/dmt CFR Qingdao, lower than the average of $99/dmt in May.
Note: This article has been written in accordance with a content exchange agreement between Mysteel Global and BigMint.
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