SHANGHAI, Apr 21(SMM) -  Recently, the long and short funds intertwined, while prices of iron ore futures fluctuated. Analysis of the main influencing factors is as follows.

The National Development and Reform Commission(NDRC) announced to carry out the annual production control task.

The National Development and Reform Commission said on April 19 that it will continue to carry out the annual production control task to guide steel mills to abandon the crude approach by large quantity and promote high-quality development of the steel industry, with the goal of ensuring the year-on-year fall of crude steel output in 2022. After the announcement of this policy, iron ore futures slumped with the most-traded 2209 contract down 40 percent. Which mainly because the production control of crude steel suppressed the demand for raw material and the prices of raw material are unlikely to rise again. In the process of production control, NDRC will adhere one general principle and focus on two keys. The general principle is to remain stable. While maintaining the continuity and stability of the policy of structural reform on the supply side of the steel industry, the principles of marketization and rule of law should be adhered to. And it is necessary to give full play to the role of the market mechanism, encourage the initiative of enterprises, and strictly implement relevant laws and regulations on environmental protection, energy consumption, safety, land use, etc. Focusing on two keys is to specify the situations to avoid a one-size-fits-all approach. In the key areas, crude steel output should be control in Beijing, Tianjin, Hebei and surrounding areas, the Yangtze River Delta region and the Fenwei Plain where air pollution is severe. In terms of key objects, enterprises with poor environmental performance rate, high energy consumption and outdated process technology should be control output.

Output of crude steel in March 2022 was 88.3 million mt, a daily average of 2.85 million mt; output of pig iron was 71.6 million mt, a daily average of 2.396 million mt. Output of crude steel decreased by 6.1% from the last year. Estimated according to the total output of crude steel at 1.032 billion mt in 2021 and output from January to March in 2022 at 243 million mt, the peak output of crude steel from April to December in 2022 could be 789 million mt. Therefore, the monthly average peak and daily average peak would be 87.71 million mt and 2.87 million mt respectively, which is that the monthly output of crude steel from April to December is slightly lower compared to March, while the daily average is slightly higher. In consideration of the heating season and production restrictions in the fourth quarter, the output of crude steel will be actually lower than Q2 and Q3. SMM believes that this policy has little impact on output of steel mills in Q2 and Q3, and there is not much growing space in the next three months, otherwise it will face stronger pressure from the government to reduce production in the second half of the year.

Output of three major mines dropped over 10% in the first quarter on the month.

The main reasons for the drop in Q1 output were heavy rains and hurricanes. In addition to the impact of heavy rainfall at Vale, permit extensions and output lower than expected at some mines contributed to the decline in output. However, in April, after the end of maintenance at Australia's main port and the improving weather in Brazil, output has basically recovered with shipments of Australia and Brazil reaching the same level as in previous years in May.

The resurgence of the pandemic affected the transport and demand.

Tangshan, having been lifted from the lockdown on April 11, was again under the pandemic prevention and control due to the resurgence of the pandemic, especially in Qian'an and Luanxian with stringent measures. Steel mills produced amid close-off. While the transport of raw materials was hindered and the pandemic prevailed in coke source area, coke inventory can only maintain 1-3 days of production. Steel mills may stop production. In addition, the pandemic further prevailed in another hub of steel mills of Jinan, Shandong. But the inventory of raw material at steel mills was higher than that in Tangshan, with few impacts on production in the short term. Considering the approach of the Labour Day holiday, most steel mills have the demand for replenishment, and there will be an increase in demand for iron ore. However, profits of steel mills squeezed after the sixth round of coke price increases. Most steel mills have suffered losses. And coupled with the impact of the pandemic on the transport of finished goods and increasing inventory at the plants, production enthusiasm was moderate. SMM believes that the increment of pre-holiday replenishment will be limited. In general, although iron ore supply was tight in the Q1, it may return to normal in Q2 or be higher on the year. Combined with high inventory at ports, supply was rather abundant. Considering the domestic policy regulation, the uncertainty of the pandemic and the impact of geopolitics, ore prices are expected to continue to fluctuated widely in the short term, and throughout the second quarter, ore prices will rise and then fall.