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China Iron Ore Futures Prices Drop to Year's Low, with Spot Sell-offs, SMM Reports
Apr 19, 2017 09:34CST
Source:SMM
The commodity market tumbled across the board on Tuesday, and ferrous metals market staged sharp losses, with iron ore hitting the lowest level of the year.

SHANGHAI, Apr. 18 (SMM) – The commodity market tumbled across the board on Tuesday, and ferrous metals market staged sharp losses, with iron ore hitting the lowest level of the year. DCE iron ore closed down by 6.49 percent, and the 1709 iron ore prices neared to the downward limit during the trading session. 

Arrivals of imported iron ore at China's ports are expected to keep growing, and supply tightness of high-grade ore is easing, and supply of deliverable goods is also growing, explaining the recent decline in the iron ore market, SMM notes.

China Iron Ore Output Grows in March, and Rio Tinto Sees Decline both in Output and Sales in Q1 2017

During the period of April 13-27, arrivals of iron ore at China's major 24 ports are estimated to reach 14.897 million tonnes, up 3.11 million tonnes from 11.789 million tonnes during the period of April 6-20. During the period of April 13-27, ore shipments to depart from Australian ports are expected at 21.56 million tonnes, down 2.02 million tonnes from 23.58 million tonnes during the period of April 6-20. And ore shipments to depart from Brazilian ports are expected at 15.20 milion tonnes during the same period, up 3.35 million tonnes from 11.86 million tonnes. These will worsen the supply&demand imbalance in the iron ore market. 

According to SMM data, iron ore inventories at 35 domestic ports surveyed by SMM stayed at 120 million tonnes for 8 weeks in a row, and weak consumption grew market pessimism. Traders intended to sell at lows for cash, but steel mills stayed out of the market against price declines, so trading was anemic, further depressing market prices. 

Moreover, losses at traders expanded based on the average price of USD 88/mt for Platts 62% iron ore. Some small and medium traders began sell-offs, and several large traders were also heard to join in sell-offs. Market pessimism spread in the spot market, narrowing the price gap between spot and futures prices.  

On the demand front, China produced 201.10 million tonnes, 175.64 million tonnes and 262.95 million tonnes of crude steel, pig iron and finished steel during the first three months of 2017, up 4.6%, 4.1% and 2.1%, respectively, on a yearly basis, according to China’s National Bureau of Statistics. In March, the average daily output of crude steel was 2.32 million tonnes, a record high. SMM predicts that utilization rates at blast furnaces are expected to keep growing slightly in April, so demand for iron ore will not wane. 
But, supply shortages of high-grade ore, which supported higher prices previously, is disappearing with arrivals of imported goods growing. Meanwhile, the driving force from decent profits at steel mills since the end of 2017 Chinese New Year holiday has gone as profits have been squeezed at mills. 

To sum up, supply surplus in the iron ore market will keep weighing down market prices for the foreseeable future, and recent big losses have triggered spot sell-offs, but small rallies are likely to happen after overdone declines. 

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