Global iron ore prices again bounced back to $75/MT, CFR China, up by $ 5/MT in a day. Prices moved up sharply as Chinese mills announced production cuts. Tangshan’s local government recently announced that they will restrict coke, iron and steel production over four months (till Mar’17) for environmental reasons.
In addition, Hebei province has also exceeded the targeted capacity cuts set by the central Chinese government for this year. It has cut its annual iron making capacity by 15.79 MnT and crude steel making capacity by 14.62 MnT during the first ten months of 2016.
The capacity cuts have spurred the future contracts both for iron and steel by 6% and 9% respectively. The announcement for production cut has increased spot steel prices. Spot rebar and HRC prices moved $10-20/MT in a day .
Demand for iron ore picked up amid positive sentiments and due to high demand of high grade products, there is shortage of these materials at ports which made buyers to purchase low grade material with no option left.
However, few market participants still believe that this rise in iron ore prices was due to speculative trading. But, Tanghan production cuts may tighten the steel supply, thereby reducing demand for iron ore in the coming time.
Market participants also believed that, as coking coal and coke prices are likely to stay on higher side in the coming months, iron ore prices may weaken as mills will have narrow margins, ample iron ore supply with slow demand in the construction sector due to winter season.
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