SHANGHAI, Jan 10 (SMM) - The most-traded SHFE iron ore contract price surged nearly 50% in the past two months, but dropped abnormally recently against falling US dollar index and rallying metals prices.
The reason behind is the China National Development and Reform Commission issuing a document aiming at correcting the rapid rise in iron ore prices and reinforcing regulation and monitoring. Amid mounting risks of supervision and regulation, the market reacted strongly and the iron ore futures contract became the only variety recording a losing session with others gaining to varying degrees. The most-traded SHFE iron ore contract once dropped more than 3% on Monday January 9, and closed the day with a loss of 2.49% or 823 yuan/mt.
In the spot market, the transactions of imported iron ore were relative active, the the traded price dropped 15-20 yuan/wmt compared with a day ago. Specifically, the price of PB fines at major ports in Shandong stood at 820-825 yuan/wmt, PB lump at 934 yuan/wmt, super special fines at 680 yuan/wmt, and IOCJ at 913 yuan/wmt. Meanwhile, the prices recorded 820-825 yuan/wmt for PB fines at Lianyungang port, 825-830 yuan/wmt and 850 yuan/wmt for PB fines and Newman fines at major ports in Hebei, and 765 yuan/wmt for blended fines at Tianjin port.
On the news, the National Development and Reform Commission issued a document last Friday night, aiming at strengthening the supervision of iron ore prices in response to the recent rapid price hike.
At the meeting organised by the Commission, experts believed that iron ore prices have been rising too rapidly when the fundamentals have been stable as a whole, and there are obvious signs of speculation. Experts suggest strengthening the supervision and regulation of iron ore prices, especially cracking down on illegitimate activities such as exaggerating market information, manipulating market sentiment, and speculating on futures and spot prices. The National Development and Reform Commission said that it will pay close attention to the price changes in the iron ore market, and will conduct in-depth investigations with relevant departments, strengthen supervision, crack down on illegal activities such as spreading false information, price gouging, and malicious speculation, and further take effective measures to effectively ensure stable iron ore prices.
As a result, the iron ore prices corrected on possible regulative measures to be introduced. Meanwhile, the fundamentals of iron ore are currently under certain pressure.
On the supply side, the arrivals of iron ore at ports have increased significantly, and the supply has always been at a high level, alluding palpable supply pressure.
The global iron ore shipments totalled 29.13 million mt last week (December31-January 6), a decrease of 12.1% from the previous session, according to SMM statistics. Among them, the shipments from Australia to China added 0.1% from the previous session. Shipments from Brazil fell 24%. However, it is worth noting that the total amount of iron ore arriving at ports in China was 27.93 million mt during the same period, an increase of 28.52% from the previous session.
On the demand side, with the profit of steel mills recovering and the reduction of iron ore prices, there will be more restocking plans before the Chinese New Year, which may boost the demand for iron ore to a certain extent.
Generally speaking, the current market players are highly concerned with news relating to iron ore supervision and regulation by relevant state departments, and it is expected that the iron ore price will fluctuate in a narrow range in the short term.
On the demand side, with the restoration of steel mill profits and the reduction of iron ore prices, the steel mills will be more active in restocking ahead of the Chinese New Year. At present, the iron ore price will be contained by the intensive monitoring of relative administration.
Regarding the subsequent price trend of iron ore futures contract, Guotai Junan Futures Research Report suggested that "The output and demand on the material side have been relatively weak, especially when the social inventory of rebar has risen sharply, and the apparent demand has declined significantly. As the Chinese New Year approaches, the demand side will weaken constantly, weighing on iron ore price. But looking back at the past two months, iron ore futures price has risen by more than 40% from the previous low. With the continuous rise in futures contract prices, the government claims to step in. As a result, the iron ore prices corrected on possible regulative measures to be introduced.”
Xinhu Futures Research Report pointed out that “Should there be no boost from the fundamentals, the iron ore price will lose momentum on news of government regulation. On the fundamentals, the steel mills are still in the process of pre-holiday restocking, but the pig iron output has shown signs of falling. In the future, as the pre-holiday restocking process draws to a close and the finished product inventory is built, there may be a phased correction in iron ore price to relieve the pressure. However, it is still necessary to pay attention to the demand for finished steel. If the demand can still support the current production level, the iron ore price will be supported. We maintain a wait-and-see attitude in the medium term, and it is recommended to go rangebound."
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