SHANGHAI, Jul 26 (SMM) - After rising by more than 3% last Friday, iron ore futures rose by more than 7% yesterday. In July, iron ore futures experienced ups and downs, but the prices were generally on a downward trend. Yesterday, the contract closed at 711 yuan/mt, a decrease of 10.11% compared with the end of June.
SMM presumes that the rebound of iron ore futures is mainly because, firstly, the cost support gradually appears. Secondly, the news that Vale lowered its annual target last week made the iron ore supply expect to shrink in the second half of 2022. Thirdly, the losses of steel mills were eased by the drop in coke prices. Fourthly, the rebar inventory decreased, improving the market sentiment and expectation of the downstream demand.
On the macro front, the Fed will announce the results of the interest rate meeting of July in the early morning of July 28, Beijing time. Previously, the interest rate hike of 75 basis points was fulfilled. After the mainstream expectation is formed, the interest rate hike will not cause large fluctuations.
On the news front, according to the data released by the China Iron and Steel Association, in mid-July, the social inventory of five major varieties of steel in 21 cities across China was 11.57 million mt, down 460,000 mt, or 3.8%, from the previous month. In mid-July, the daily output of crude steel in steel enterprises was 2,037,900 mt, down 1.78% from the previous month.
On the fundamentals,
on the supply side, last week, Vale released its second-quarter production and sales report, the most important of which was to lower its iron ore production target for 2022 from the original 320-335 million mt to 310-320 million mt. According to data tracked by SMM, iron ore arriving at ports from July 18 to July 24, 2022, added by 930,000 mt WoW, and up 670,000 mt over the same period last year. During the same period, shipments from Australia increased by 420,000 mt WoW, while the shipments from Brazil decreased by 640,000 mt WoW.
On the demand side, according to the SMM statistics, as of July 20, the average operating rate of the blast furnace was 75.76%, down 2.54 percentage points WoW and 3.47 percentage points MoM. According to the SMM survey, from June to July 21, 93 blast furnaces have been shut down, affecting as high as 340,000 mt of pig iron output per day, and the daily demand for iron ore decreased by about 540,000 mt. This week, there are still four blast furnaces scheduled for overhaul.
On the whole, SMM believes that the iron ore prices may still remain rangebound at low levels. Although the profits of steel mills have been restored, the market trading still has not improved obviously due to the continuous increase in inventory. In the short term, the production resumption is uncertain as more blast furnaces begin to overhaul, which affects the demand for iron ore. Meanwhile, the arrival of overseas iron ore at ports is expected to reach its peak in the third quarter. Under the background of the weaker demand and stronger supply, iron ore futures may continue to fluctuate at low levels.