Market: Bullish sentiment pushes up China iron ore price
For China’s iron ore futures market, the rise in price has been even more obvious. On Friday, the most-traded iron ore contract on the Dalian Commodity Exchange (DCE) for September delivery closed at a new daily high of Yuan 668/dmt by the end of the daytime session, already higher than the previous yearly high of Yuan 653.5/dmt reached on February 2 and making for a sharp increase of Yuan 21.5/dmt or 3.3% from Thursday’s settlement price.
“The recent strength of iron ore prices is largely supported by positive sentiment from welcome news about the health of the domestic steel market. For the time being, the large increase in domestic steel demand is prompting Chinese steelmakers to continue ramping up their output, which calls for more iron ore consumption,” an iron ore trader based in Australia remarked.
He also mentioned that policies China’s central government has released for boosting both the domestic economy and industrial activity to bring everything back to the normality prior to the COVID-19 outbreak are being reflected in actual steel demand.
According to Mysteel’s data, the inventories of the five major steel items comprising rebar, wire rod, hot-rolled and cold-rolled coil and medium plate at trading houses in China’s 132 major cities dropped by another 4.8% on week to 26 million tonnes as of May 14, with the decline rate quickening from the prior survey period.
Meanwhile, the stocks of the same five products held by the 184 steelmakers across China Mysteel monitors also declined at a faster pace over May 7-13, falling by another 6.7% on week to 6.6 million tonnes.
A Beijing-based analyst with a futures company agreed that iron ore demand among Chinese steelmakers is robust currently. However, he also noted that the market is still holding a cautious view regarding near-term iron ore supply from overseas which may swing the market now and then.
“The uncertainty regarding overseas iron ore supply is more about Brazil, especially Vale, now that the spread of the virus in Brazil is rather severe, and no one knows if this will affect the country’s iron ore mining operations and shipments in the months ahead,” the analyst explained.
According to him, the sharp increase in iron ore futures prices in Dalian on Friday also partly reflected market participants’ worries about disruptions to Vale’s iron ore mining operations and future iron ore supply. This followed a report from a foreign news agency that the city of Brumadinho in Minas Gerais state in Southeast Brazil had decided to suspend Vale’s operating licence, reporting that city health authorities had alleged the company’s onsite activities had “not respected the rules of social isolation”.
The Beijing analyst pointed out that for the near future, the core indicator of iron ore market mood may be the level of inventories at Chinese ports, arguing that these can reflect the dynamic of both iron ore supply and demand.
“So far, though more overseas iron ore resources are being supplied to China, inventories have nonetheless declined to a rather low level. So long as the port inventories continue to decline, iron ore prices will continue to have support,” the analyst added.
Iron ore stocks at 45 Chinese ports nationwide have gradually declined over the past several months, Mysteel data show. As of May 14, the volume had eased to 110.9 million tonnes, refreshing its low since late November 2016. By comparison, at the beginning of this year the port inventories totalled around 125 million tonnes.
For the longer term, the analyst admitted that trends in iron ore prices were hard to predict, especially from the demand side. “Normally, steel demand will soften for several months from now, due to the arrival of Wet Season with rains and hot weather which disrupts work on construction projects,” the analyst explained. “But these days, with Beijing’s policies to boost the economy, it is difficult to say whether this year will see a slack season or not. This makes it hard to guess whether iron ore demand will be impacted by then.”
Written by Victoria Zou, zyongjia@mysteel.com
Edited by Russ McCulloch, russ.mcculloch@mysteel.com
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