[SMM Analysis] Will iron ore prices continue to plummet?

After the Spring Festival, iron ore prices continued to fall. Yesterday, the I2405 contract finally closed at 893, hitting a three-and-a-half-month low.

From a fundamental point of view, there are few factors affecting the overseas shipment of iron ore this year, and the ore price is high, and non-mainstream mines are actively shipping. As a result, the overall shipment volume has been at a high level and the supply is relatively loose. During the Spring Festival, the shipment from port was at a low level, and the port's inventory accumulated quickly, pressuring iron ore prices. In addition, there has been a lot of rain and snow this year. Affected by the weather, construction sites in various places have been slow to resume production. Downstream demand for steel has been slow to start. The production resumption of blast furnaces in steel plants has been delayed. In addition, some steel plants have added new maintenance to blast furnaces, and pig iron production has declined instead of increasing. Market expectations have weakened and market sentiment has been pessimistic.

On the macro front, although the 5-year interest rate has been reduced, the impact is limited as the market expects that real estate will still be in a downward trend. Therefore, iron ore prices have experienced a continuous sharp decline.

In the later stage, Western Australia is experiencing a round of hurricane weather this week, which will have an impact on iron ore shipments. In the medium to long term, the first quarter is the rainy season in the Western Hemisphere, which has affected both Australia and Brazil, and shipments are expected to remain at a low level for the year. On the demand, steel mill inventories were consumed during the holiday and dropped significantly, and there was an immediate need to restock after the holiday. In addition, steel mills currently have little pressure on finished product inventories. As downstream demand recovers, steel mills' blast furnace resumption of production may accelerate. There is still room for growth in overall iron ore demand, which will provide certain support for ore prices. At the same time, with the implementation of three rounds of price cuts for coke and the possibility of a fourth round of price cuts, the improvement in profits of steel mills may drive the purchase of raw materials. Therefore, SMM believes that there is no possibility for iron ore to continue to fall sharply in the short term, or it may continue to fall. In the medium and long term, we also need to pay attention to the recovery of terminal downstream demand and whether new stimulus policies will be introduced during the two sessions.