The iron ore market remains volatile, with prices trending downward despite a soaring ferrous-related futures market at the end of July.
Key drivers for iron ore price volatility
The most-traded September iron ore futures contract on the Dalian Commodity Exchange (DCE) decreased by 1.6% to 834.50 yuan ($117) per tonne on Friday from the previous closing price of 848.50 yuan per tonne.
By 6:19 pm Singapore time, the most-traded September contract on the Singapore Exchange (SGX) moved down by $2.97 to $106.80 per tonne, compared with the previous settlement price of $109.72 per tonne.
China’s political body, the National Development and Reform Committee (NDRC), was heard to have a telephone meeting with local governments across the country to set a crude steel production cut target for 2023, further dampening market confidence on iron ore demand and spot prices.
Officials in Yunnan Province in southwest China, which produced 6.94 million tonnes of crude steel in 2022, notified local steelmakers to keep 2023 crude steel output flat or lower than the previous year, according to Fastmarkets.
China’s crude steel output in the first half of 2023 totaled about 535.64 million tonnes, up by 1.3% year on year, according to data released by the National Bureau of Statistics. The provinces with the largest combined output were Hebei, Jiangsu and Shandong.
Currently, there is a lot of market chatter and guessing, but we’re waiting for an official file with instructions from the Hebei government
“Currently, there is a lot of market chatter and guessing, but we’re waiting for an official file with instructions from the Hebei government,” a Hebei-based mill analyst said.
Market participants also noted that the expectation for larger iron ore shipments in the second half of 2023 from Australia and Brazil might add more downward pressure on iron ore prices.
China stimulus dampens iron ore prices
Moreover, sources said the seasonally weak downstream steel demand for August had offset any previous optimism over China’s stimulus policies in the iron ore and steel spot market.
“Some market players who were previously bullish over China’s stimulus policies have closed or shredded the positions in SGX’s iron ore swaps this week,” a Singapore-based trader source said.
In the seaborne iron ore market, trading activities for mid-grade Australian cargoes shipped in early or mid-September increased in late July before decreasing after prices in the futures market dropped sharply from the night session on Thursday, July 27.
A few sources added that trading activities in the secondary market were also thin at the end of July, with offers largely unchanged and buyers remaining cautious.
“The market is quiet today, and some traders are also not very active in concluding deals [by] lowering offer prices, although the futures prices dropped sharply,” a Shanghai-based trader said.
Speculative buying interest also eased, with traders’ bearish sentiment increasing under expectations for crude steel production cuts.
“Previously, there was a divergence in traders’ sentiment; some of them said the crude steel cut policy could only happen gradually later this year, rather than cutting production to meet a target in a short period, now more of them concerned about the latter [scenario],” a second Shanghai-based trader said.
In China’s portside market, some steel mills in Shandong and Hebei province procured on an as-needed basis due to low stock levels and recovery of profit margins, which might lend support to iron ore demand in the short term, Fastmarkets understands.
However, most market players were also cautious due to uncertainty around the policy to cut crude steel output, leading to a decline in overall transaction volume.
