[SMM Analysis] Iron ore prices fell sharply in March. Can it be reversed in April?

Iron ore prices extended the declines. In early March, terminal demand recovered slowly, demand for finished goods was suppressed, and inventories continued to increase. Due to the decline in finished product prices, the profits of steel mills narrowed, resulting in increased maintenance of some steel mills. The output of pig iron suppressed the demand for iron ore. Therefore, market pessimism intensified in mid-March, and ore prices fell sharply. In late March, steel associations in many places issued production control initiatives, the supply of construction steel decreased, and the apparent demand improved. The inventory of construction steel began to drop. Market pessimism has been released. However, overseas shipments continued to remain high in March, especially shipments to Australia and Brazil, and with low pig iron production and weak iron ore demand, port inventories continued to accumulate and exceeded the same period last year. Iron ore continued to see growing supply and poor demand in March. Although on the macro front, there are news of interest rate cuts, the central government budget investment plans and the issuance of trillions of national debt, the impact is limited to resolve the current contradiction. Therefore, the decline in mineral prices in March was much greater than that in February. The spot price of mmi62% at SMM port dropped from 943.83 yuan/ton at the end of February to 808.81 yuan/ton. The price of PB powder at Qingdao port dropped from 920 yuan/ton at the end of February to a low of 775 yuan/ton. The prices fell by over 100 yuan/mt.

In April, can pig iron production rebound significantly? Will iron ore prices reverse? From the supply, the first quarter is traditionally the off-season for shipping, but in the first quarter of this year, there were relatively few hurricanes and rainstorms, and coupled with the relatively high mineral prices in January and February, non-mainstream mines were actively shipping. Therefore, iron ore imports remained high. In April, overseas shipments began to shift from the off-season to the peak season. Based on past experience, iron ore shipments in April increased compared to March. However, considering that after the ore prices fall below $100/mt, it will affect the shipments of some non-mainstream mines, SMM estimates that shipments in April are still expected to increase, but the increase will be smaller.

According to SMM survey, 9 blast furnaces will be overhauled in April, which will affect pig iron output by 68,300 mt per day, and 24 blast furnaces will resume production, translating into a daily loss of 120,600 mt of pig iron output. SMM estimates that the pig iron output loss from blast furnace maintenance will down by 1.8839 million mt MoM to 6.7094 million mt in May, with a daily average increase of 60,000 mt of pig iron output.

As of Mar 29, iron ore inventories across 35 ports tracked by SMM totalled 140.18 million mt, up 490,000 mt from the previous week and up 9.17 million mt year-on-year. Daily average deliveries from the ports decreased by 40,000 mt on a weekly basis to 2.779 million mt last. The volume arriving at the port in this cycle still increased significantly; in terms of shipments from the port, the output of pig iron increased slightly this week, but the growth rate was lower than expected, the inventory in the factory was relatively sufficient, and shipments from the port decreased slightly; overall, the port inventory still showed an accumulation trend. In the future, as the shipments of pig iron from port increased, the arrivals at port are expected to remain high in the short term. Overall, port inventories may continue to accumulate in April.

On the whole, iron ore may show a strong supply and demand in April. Considering that the recovery of terminal demand may still be slow, there is the possibility of negative feedback occurring again, which, coupled with the high inventory, will suppress iron ore prices. It is expected that the weak trend of iron ore prices will remain unchanged in April and will continue to swing on a soft note.