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Iron ore uplink drive weakens
Sep 15,2020 13:23CST
translation
Source:Futures daily
The content below was translated by Tencent automatically for reference.

SMM Network News: strong demand and structural advantages of varieties are the main logic of strong ore prices in the early stage, but the profits of steel mills have dropped significantly under high ore prices, and the utilization rate of blast furnace capacity is high, coupled with seasonal production restrictions coming, the positive effect of iron ore demand side is weakening, while iron ore supply remains high, the fundamentals are gradually weakening, and the trend of mineral prices in the future is easy to follow the oscillation downward.

The positive effect on the demand side is weakening.

The daily average hot metal output of steel mills and the daily consumption of sinter powder continue to operate at a high level, indicating a strong domestic terminal demand for iron ore. As of the week ended September 4, the average daily output of molten iron in the 247 sample steel mills was 2.5159 million tons, compared with an average of 2.5262 million tons per week in August, an increase of 8.94 per cent year-on-year. According to the statistics bureau, the cumulative output of pig iron in China from January to July increased by 3.20% year-on-year to 511 million tons, an increase of 15.84 million tons, or an increase of nearly 25.35 million tons in iron ore consumption. On the contrary, the supply of the mining market did not decline as a result of the epidemic. China's iron ore imports from January to July were 760 million tons, an increase of 11% over the same period last year. According to shipping data, the four largest miners in the world shipped a total of 694 million tons from January to August, an increase of 0.88% over the same period last year. In the same period, the arrival volume of domestic 26 ports increased by 9.16% year-on-year to 717 million tons, an increase of 3.49% over 2018. Thus it can be seen that the continuous decline in domestic iron ore stocks is not caused by the reduction of supply, but the result of the tight balance of the mining market caused by strong domestic demand.

However, the favorable effect on the demand side is weakening, the strong mineral price continues to compress the profits of steel mills, and the profits of main varieties have dropped obviously, and the profits of rebar and hot coil per ton steel are both low in the same period of nearly 5 years. In addition, at present, the utilization rate of blast furnace capacity is absolutely high, and there is little room to continue to increase production. The average daily hot metal output of steel mills and the utilization rate of blast furnace capacity have dropped recently, which are 17100 tons and 0.64% lower than the previous highs, respectively. Thus it can be seen that in the case of low profits and high capacity utilization, the positive effect on the demand side of iron ore is weakening.

High supply continues to pressure ore prices

Miner shipments remained high, with 19 MTR ore shipments worldwide reaching 139.6 million tonnes in August, an increase of 4.0629 million tonnes from the previous month and a year-on-year increase of 2.47 per cent. Of this total, Australian shipments were 75.7999 million tons, a slight decrease of 157000 tons from the previous month, while Brazilian shipments rebounded significantly, up 5.2964 million tons from July to 33.7326 million tons, while shipments in other regions remained high at 25.8004 million tons, with an increase of 10.14 percent over the same period last year.

The overhaul of Australian miners' berths has led to a slow recovery in recent shipments, which are seasonally low, and subsequent shipments will still return to high levels. While VALE is driven by the target output, the subsequent shipping volume will remain high, and the power to reduce production of non-mainstream mines is not strong under high ore prices. Overall shipments are likely to break through the first half of the year high, iron ore supply pressure persists.

Weak timber is easy to drag down the ore price.

The core question of ferrous metals is whether the strong expectations of terminal demand can be fulfilled. At this stage, rebar presents a pattern of high supply and high inventory, and the supply pressure persists, and the early expectation that terminal demand will return to a high level based on good infrastructure construction is very strong, but although terminal demand gradually rebounded after the peak season, the growth rate is significantly lower than expected. the latest weekly apparent demand for rebar has increased by only 3.76% compared with the same period last year, and the expectation of strong demand has not been realized for a long time. On the contrary, the current high inventory, only if the weekly apparent demand increases by more than 15% year-on-year, can it fall to the level of the same period last year before the winter storage. Once the demand is lower than expected, the pressure of inventory destocking will be highlighted. There is a gap between the strong expectation of the mature end and the weak reality, and the price pressure is weakened under the drive of external risk.

In short, strong demand gives support to mineral prices, but its positive effect is weakening, on the contrary, the supply continues to be high, coupled with the drag on vulnerable materials, the fundamentals of the mining market are gradually weakening, the upward drive of mineral prices is not strong, and the follow-up trend will follow the oscillating downward trend.

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