[SMM Brief Analysis] When Will the Fluctuating Iron Ore Market See a Turnaround?

Last week, the most-traded iron ore contract I2501 remained strong for the first four days but fell again on the last working day. Over the past half month, ore prices have fluctuated between 730 and 800 yuan/mt. When will this stalemate see a turnaround?

In the short term, this fluctuating price trend is expected to continue. The current main driving force is macroeconomic factors. The market has high expectations for RRR cuts and interest rate cuts. Therefore, before the central bank announced the interest rate on the 19th, market expectations were strong, coupled with the impact of minor news, leading to a significant rise in futures prices. Additionally, the market had certain expectations for business meeting, but expectations were not met. There are no new influencing factors this week, and macro policies will enter a brief vacuum period, shifting the market focus back to fundamentals. From the perspective of iron ore fundamentals, there have been no significant fluctuations recently, with the main focus on changes in pig iron. Last week's daily pig iron production fell slightly but is expected to rebound this week, so pig iron variables have not yet become the main factor affecting prices. On the industrial side, the apparent demand for rebar and HRC remains strong. Currently, steel mill inventories are low, with little pressure, and most steel mills still have profit margins, lacking motivation to reduce production, thus maintaining stable production. SMM expects that in the short term, ore prices will continue to fluctuate rangebound, with resistance above and support below.

In the medium and long-term, as the weather turns colder, projects in north China gradually halt, and the apparent demand for rebar is expected to decline significantly. However, the recent significant increase in HRC export orders has somewhat alleviated market pressure. Nevertheless, with the decrease in manufacturing demand and the increase in HRC production, the pressure on steel mills may continue to rise, with profit expectations weakening. Additionally, frequent environmental protection-driven production restrictions during the heating season in north China may impact the production of regional steel mills. From a macro perspective, the December Politburo meeting is expected to bring a new round of policy expectations. Meanwhile, steel mills have begun to gradually replenish raw material inventories, driving the US dollar-denominated market and the spot market for iron ore. Therefore, in the medium and long-term, there may be opportunities for a rebound in ore prices. It is recommended to closely monitor the dynamics of macro policies and the data performance of end-use demand during the off-season.