Ore Prices Follow Steel Prices, And Iron Ore Is still in A Situation of Strong Supply And Weak Demand in The Short Term.

Black futures prices started a collective rebound trend after hitting bottom on March 18, ending the unilateral downward trend after the Spring Festival. The main reason is that, on the one hand, short funds in the main rebar futures contracts voluntarily left the market, and the market price stabilized and rebounded, driving market speculative demand, and the steel price transaction situation improved significantly compared with the previous period; on the other hand, the terminal demand improved marginally, and the apparent demand for steel Driven by the rebound, rebar saw destocking in the first week, black futures showed periodic positive feedback, and raw material prices rebounded accordingly. In the later period, we need to focus on the recovery speed of steel demand.

The overall macro outlook is optimistic, boosting market sentiment in the short term

In terms of fiscal policy, first, Premier Li Qiang chaired an executive meeting of the State Council to hear reports on optimizing real estate policies to promote the stable and healthy development of the real estate market. The meeting pointed out that it is necessary to further optimize real estate policies, continue to ensure the delivery of buildings, people's livelihood, and stability, further promote the implementation of the urban real estate financing coordination mechanism, systematically plan relevant support policies, effectively stimulate potential demand, and increase the supply of high-quality housing , and promote the stable and healthy development of the real estate market. Second, when Li Qiang attended the opening ceremony of the China Development Forum 2024 Annual Conference and delivered a keynote speech, he pointed out that China will increase macroeconomic policy adjustment, strengthen policy coordination, ensure the same direction and form synergy, and strive to expand domestic demand. Promote large-scale equipment updates and trade-in of large quantities of durable consumer goods. Zheng Shanjie, director of the National Development and Reform Commission, said that equipment updates will be promoted in seven major fields including industry, agriculture, construction, transportation, education, culture and tourism, and medical care, which is expected to form a huge market with an annual scale of more than 5 trillion yuan; the development of automobile, The upgrading of durable consumer goods such as home appliances and home furnishings is expected to unleash a trillion-yuan market potential; promoting the transformation from dual control of energy consumption to dual control of carbon emissions will require at least more than 2 trillion yuan of new investment every year before 2030.

In terms of monetary policy, there is still room for the central bank to lower the reserve requirement ratio, and the depreciation of the RMB will boost spot prices. On March 21, at a press conference of the State Council Information Office, Deputy Governor of the Central Bank Xuan Changneng said that my country’s monetary policy has sufficient policy space and rich tool reserves, and there is still room for the statutory deposit reserve ratio to decrease. The recent depreciation of the RMB again has a supporting effect on port spot prices.

Supply-side support has increased overall

On the supply side, the overall supply of imported minerals remains at a medium to high level. After the impact of the Australian hurricane was eliminated, Australia's total iron ore shipments and the volume of iron ore shipped to China both rebounded, while Brazil's iron ore shipments fell sharply. In the later period, Australia's BHP Billiton and FMG mines entered the fiscal year impulse cycle, and it is expected that iron ore shipments from mainstream mines will not see a sustained decline.

In terms of non-mainstream mines, iron ore shipments have fallen sharply, and the iron ore index price has continued to fall to around US$100/ton, which has had a marginal impact on iron ore shipments from non-mainstream mines.

According to statistics from relevant agencies, as of the week of March 25 (March 18-25), the total global iron ore shipments were 29.121 million tons, an increase of 211,000 tons year-on-year; Australian iron ore shipments were 19.129 million tons tons, an increase of 1.344 million tons year-on-year; Brazilian iron ore shipments were 4.927 million tons, a year-on-year decrease of 1.313 million tons; non-Australian and Brazilian iron ore shipments were 5.066 million tons, a year-on-year increase of 181,000 tons.

The supply of domestic mines is at a high level, and the operating rate of domestic mines and the output of domestic iron concentrate are both in a seasonal recovery cycle and are much higher than the same period last year. According to statistics from relevant agencies, as of the week of March 22 (March 18-22), the average daily iron concentrate output of 126 mining companies across the country was 430,100 tons, an increase of 64,600 tons year-on-year; the mine operating rate was 68.17% , a year-on-year increase of 10.23 percentage points.

Domestic demand rebounds from low level

On the demand side, profits of steel companies have stopped falling and stabilized, and short-term iron ore demand has picked up marginally. As of the week of March 22, the blast furnace operating rate of 247 steel companies across the country was 76.90%, an increase of 0.75 percentage points from the previous month. The profitability of steel companies was 22.94%, an increase of 1.73 percentage points from the previous month; the average daily hot metal production was 2.2139 million tons, an increase of 0.75 percentage points from the previous month. An increase of 5,700 tons. During the statistical period, a total of 7 blast furnaces were newly overhauled and 12 blast furnaces resumed production. The overhauled blast furnaces were concentrated in North China and Northwest China, and most of them were temporary maintenance. The resumed blast furnaces were mainly concentrated in North China, Central China, Southwest and other regions, mainly due to steel Sales improved and production resumed. Judging from the production resumption plans of steel companies, a large number of blast furnaces will still resume production intensively in the next one to two weeks, and the average daily hot metal production is expected to return to the level of 2.25 million tons. However, the current profit level of steel companies is still low and the recovery of terminal demand is slow. There is a risk that the recovery of molten iron production will not be as good as expected.

Steel company inventories have increased

In terms of inventory, imported ore inventories in South China and East China have increased significantly due to the shipping of some iron ore purchased in a mixed manner as floating cargo. The amount of iron ore arriving at the port has increased, while the port unloading volume has remained at a medium level. Port imported ore inventories continue to rise. Affected by high shipments and low demand, the inflection point of imported iron ore inventories of steel companies has not yet appeared. However, the overall inventory growth rate continued to decline, and port inventory increased to 143 million tons, a year-on-year increase of 7.6115 million tons. It is expected that port iron ore inventory will maintain growth in the short term.

To sum up, the author believes that active macro policies will boost iron ore commodity prices in the short term. The short-term market sentiment is still in the process of recovery. With the current profits of steel companies recovering, demand for raw material iron ore is expected to rebound. The recovery speed of terminal demand and steel price performance in the later period are the core focus. The short-term contraction of the supply side is expected to be weak. In the short term, iron ore itself is still in a pattern of strong supply and weak demand. The iron ore market price has rebounded after experiencing a sharp decline, and there are obvious signs of capital game. The basis difference in recent months has been at a low level, and the driving force of the basis difference is weak. It is expected that the short-term iron ore price will still follow the steel price. (Cheng Peng)

Reprinted from: China Metallurgical News