[SMM Brief Analysis] With Support Below and Resistance Above, Iron Ore Prices Face a Dilemma

This week, iron ore prices continued to drift higher, with the most-traded contract I2701 peaking at 721 yuan/mt during the week. The main driver of this rise remained from the news front — the labor negotiation deadlock at BHP's Port Hedland mine sparked concerns over tight supply of medium-grade iron ore. On the fundamentals side, the supply side showed mixed bullish and bearish factors: shipments from ex-China mines rebounded as expected, but due to typhoon weather, port arrivals plunged 37% this week, port inventory edged down, and supply pressure eased temporarily. The demand side showed mild recovery, with hot metal production edging up this week, coupled with improved steel orders in some regions, which drove marginal improvement in spot purchase willingness. Overall demand for iron ore edged up, and trading volume expanded, lending some support to ore prices.

Chart: MMI 61% Port Spot Cargo Index

Source: SMM

This week, domestic iron ore concentrate prices showed mixed performance across regions. By region, prices in Tangshan, Qian'an, and Qianxi in Hebei edged down 1-5 yuan/mt; Chaoyang, Beipiao, and Jianping in western Liaoning were basically stable; east China saw an increase of 5-10 yuan/mt.

The 66% grade iron ore concentrate EXW price (dry basis, including tax) in Tangshan closed at 960-965 yuan/mt. Currently, resources at mines and beneficiation plants were generally tight, but steel mills had a strong desire to bargain down prices. Meanwhile, there was still a price spread between imported ore and domestic ore, so steel mills' purchase willingness for domestic iron ore concentrates was not high. Other regions were similar, with most mines and beneficiation plants maintaining normal production as planned. Overall, domestic concentrate prices were in the doldrums this week.

Chart: This week, the price spread between imported ore and domestic ore narrowed slightly; it is expected to be stable next week.

Outlook for Next Week

Imported Ore: Outlook for next week,iron ore prices are expected to move sideways in a narrow range. Fundamentals will be under pressure: ex-China mine shipments will maintain slight growth, and after the typhoon disruption subsides, previously delayed vessels will concentrate arrivals, so port arrivals are expected to rebound sharply. Meanwhile, end-users have not yet entered the peak season, so hot metal production is unlikely to see significant growth. With supply strong and demand weak, ore prices will face downward pressure. In addition, coke prices are expected to increase next week, which may temporarily raise steel mills' cost pressure and curb their purchase willingness for iron ore. However, there are also supporting factors: the risk of worker strikes at BHP's Port Hedland and the unresolved long-term contract negotiations still raise concerns over limited circulation of medium-grade resources. Moreover, as the National Day holiday approaches, trading in USD-denominated forward spot cargoes may improve, lending some support to offshore futures prices. With bullish and bearish factors intertwined, ore prices have support on the downside and pressure on the upside; they are expected to move sideways in a range next week.

Domestic ore: Looking ahead to next week, domestic iron ore remains at a cost disadvantage, and under the control of steel mills, the price spread between China's domestic and imported ore is expected to continue narrowing. The willingness to hold prices firm on the supply side has loosened somewhat, and the market is gradually shifting to a buyer-dominated position. On balance, local domestic concentrate prices may be in the doldrums.