[SMM Brief Analysis] Bulls and Bears Remained Locked in a Tug-of-War With No Breakthrough; Next Week Is Expected to Continue Testing Resistance While Consolidating on a Strong Note

This week, iron ore prices consolidated on a strong note. The most-traded I2701 contract hit an intrawweek high of 725 yuan/mt, up about 1.3%–2.0% on the week (based on Friday’s close), posting a second consecutive weekly gain. However, prices remained in the year-to-date low range of 700–730 yuan/mt. This round of gains was driven by a resonance of multiple factors rather than a single headline catalyst. First, labor-management negotiations at BHP’s Port Hedland were deadlocked (on August 25, the union rejected the wage proposal, involving about 450 port workers; the next round of talks is scheduled for September 8), which fueled expectations that supply tightens. Meanwhile, freight rates on major routes stayed fluctuate at highs amid war-related disruptions, further reinforcing bottom support for prices. Second, as the September-October peak season approached, steel mills expected a September restocking rally, lifting market sentiment. Third, coking coal and coke prices rose sharply this week, boosting finished steel prices; iron ore, as a raw material, passively followed higher, also providing some boost to ore prices. Overall, this rebound in iron ore was strongly supported by sentiment and cost support, but prices were still in the year-to-date low range. Going forward, attention should be paid to the pace of end-use demand release and the evolution of supply-side events.

Chart: MMI 61% Port Spot Cargoes Index

Source: SMM

Chart: The Imported Ore–Domestic Ore Price Spread Continued to Narrow This Week; It Is Expected to Be Relatively Stable Next Week

Outlook for Next Week

Outlook for next week,iron oreis expected to drift higher and test resistance, with limited upside room. The most-traded contract is seen in a reference range of 700–730 yuan/mt, and the imported ore MMI 61% port spot cargoes index corresponds to about 695–710 yuan/wmt.

Early in the week, prices may continue to consolidate on a strong note, driven by cost support and peak-season expectations; if, in the first week of September, apparent demand for finished steel and hot metal fail to show a meaningful rebound, futures are likely to retreat after rapid rise. Specifically:

• Supply side: After the end of Simandou’s rainy season, shipments are expected to rise further. Entering September, the shipment midpoint for major mines is likely to edge up. Watch the pace of port inventory buildup—if weekly inventory buildup exceeds 1 million mt, it will reinforce the September “inventory buildup short-selling” logic.
• Demand side: Based on blast furnace maintenance and resume production, SMM expects next week’s daily average hot metal production to edge up MoM, but growth in hot metal will be capped given tight coke supply and narrowing steel mill profits. Actual growth may be smaller than current expectations.
• Macro and headlines: The US Fed rate-hike game intensified. CME data showed the probability of a 25-bp hike in September rose to 41%. This may disrupt market sentiment and cap upside elasticity.

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