Fundamentals limit upside potential, iron ore prices lack upward momentum [SMM Brief Review]

Iron ore futures held up well today, with the most-traded contract I2605 closing at 777.5, up 1.63% from the previous working day. Traders showed good willingness to sell; steel mills adopted a cautious wait-and-see approach, purchasing as needed. Market transaction atmosphere was generally muted. In Shandong, transaction prices for PB fines were in the range of 790-795 yuan/mt, up 5-8 yuan/mt from yesterday; in Hebei, transaction prices for PB fines were in the range of 805-812 yuan/mt, up 5-10 yuan/mt from yesterday.

From today's industrial data, both supply and demand declined. However, inventory continued to draw down, with the total inventory of the five major steel products also at a relatively low level. Coupled with recent environmental protection-driven production restrictions in regions like Hebei and Sichuan, and maintenance at some steel mills, production slid. This helped alleviate inventory pressure at steel mills. Additionally, supportive macro news and a sharp rise in coking coal prices boosted market sentiment. Iron ore rebounded slightly, following other ferrous products. Considering the widening supply-demand gap for iron ore, which caps upside price potential, iron ore's upward room is expected to be limited, with short-term risks of a pullback.