Why Iron Ore Prices Surged 9%?

SHANGHAI, Dec 8 (SMM) - The profits at steel mills increased, boosting the demand for iron ore. Besides, real estate credit policy may marginally loosen, boosting market sentiment and pushing up steel prices. Iron ore futures have risen for several days.  China's central bank, the People's Bank of China, will cut the reserve requirement ratio by 0.5 percentage point. Government also released the signal of “stabilising the real estate industry”. Iron ore prices surged 8.66% yesterday supported by multiple factors.

The output of molten iron will be suppressed by policies on output cuts and the weakening of demand which exceeds expectations. The daily molten iron output stood at 2.03 million mt in October and declined further in November. Even if it is estimated that the demand for crude steel for the whole year of 2022 will fall by 5%, the average daily molten iron output will exceed 2.25 million mt, which is much higher than the current level.

SMM believes that the current supply of molten iron is basically at the bottom level due to demand and policies. Steel mills are expected to resume production in H1 2022 as the terminal demand recovered marginally, the production cuts have met the requirement of policies, profits are at higher levels and the raw material inventory is at a low level.

However, considering the level II warning of heavy air pollution weather in Tangshan this week, and the accumulated inventory of imported ore at ports for 10 consecutive periods to a high level of 150 million mt, iron ore prices lack continued momentum for moving upward.