MNI: Iron Ore Prices To Fall Further-China Advisor, Analyst

Iron ore prices paid by Chinese importers are set to fall further before stabilising at about USD80-90 per tonne, as the country’s property sector remains weak and investment in heavy infrastructure slows, a Beijing-based advisor and market analysts told MNI.

China’s iron ore supply increased by 15 million tonnes year-on-year during January to February amid robust imports, while steel mills’ repeatedly-delayed resumption of production following Chinese New Year has sent inventories to as high as 145 million tonnes, an analyst from GF Futures told MNI.

“There is no upward drive in the price of iron ore in the near term as steel mills may only increase production slightly in April,” the analyst said, adding the average daily molten iron output may increase by 40,000 tonnes this month from March.

“The negative cycle continues with both iron ore and steel prices on the verge of breaking below key supporting levels, coupled with recent decline in steel transactions,” said the analyst.

May-dated iron ore futures dropped 5.6% to an intraday low of USD95.4 a tonne on the Singapore Exchange on Monday, touching a 10-month low and adding to the three-month decline from above USD130 in January.

“The current level above USD100 is still high, while about USD80-90 per tonne should be a relatively balanced level,” said Wang Yongzhong, head of international commodity research at the Institute of World Economics and Politics, Chinese Academy of Social Sciences.

Steelmakers have suffered serious profit losses since January and have shut down capacity for maintenance as weak demand weighs, said Wang.

Zhou Fuhan, ferrous ­­­metal analyst at Nanhua Futures, told MNI any substantial increase in molten iron production would require a significant rise in steel demand. But steelmakers still need to cut production by 10% to bring supply and demand back into balance, he added.

WEAK DEMAND

China, which buys over 60% of global iron ore, has seen a fall in demand for the metal due to the real-estate meltdown and slower infrastructure investment growth. The current iron ore price is still higher than pre-pandemic levels, leaving room for further correction, Wang said. (See MNI EM: China To Continue Housing Relaxation As Developers Suffer)

While iron ore imports grew 8.1% y/y in the first two months of 2024 to the highest level for January and February for years, Wang said this impulse was unsustainable.

The increase in imports mainly came from mines in Brazil, and other non-mainstream suppliers including India and Iran, noted the GF Future analyst. Though China wants to diversify its iron ore supplies, its traditional supplier Australia retains a cost advantage, he said.

China’s increasing use of scrap steel will help cut its import reliance in the long run, noted Wang. Zheng Shanjie, head of the National Development and Reform Commission said earlier China recycled about 260 million tonnes of scrap steel last year, meeting over 20% of its crude steel production needs.