Fundamentals and Market Outlook for Iron Ore

SHANGHAI, Feb 22 (SMM) - Affected by the optimised domestic pandemic prevention and control measures, the intensive introduction of domestic stimulus policies, and the slowdown of interest rate hikes by the Federal Reserve, the iron ore market outlook improved after the Chinese New Year. Downstream steel mills have resumed work, and pig iron output has continued to increase. According to the 120 major domestic steel mills surveyed by SMM, the output of pig iron continued to increase slightly in January, totalling 48.69 million mt, an increase of 140,000 mt or 0.3% from December 2022.

SDIC Anxin Futures analysts said that the recent rise in iron ore prices was mainly caused by optimistic expectations of improving terminal demand. At present, the favourable policy has boosted the real estate industry. However, steel mills still maintain a low raw material inventory in the case of poor profits. With the improvement of future demand and the further resumption of steel mills, restocking demand for iron ore drove up the prices.

The supply of iron ore increased. According to SMM research, the total global iron ore shipments stood at 27.07 million mt last week (February 11-17), up 7.8% on the week. Among them, the imports from Australia to China rose 4.3% from the previous week, and that from Brazil decreased 5.5% on the week. According to SMM research, domestic iron ore arrivals recorded 28.52 million mt, down 1.06% on the month.

As of February 17, iron ore inventories across 35 ports tracked by SMM totalled 137.11 million mt, an increase of 1.02 million mt from the previous week but down 16.53 million mt year-on-year.

However, due to the slow recovery of terminal demand, the steel mills actively picked uo goods from ports, and the daily average shipment rose 79,000 mt on a weekly basis to 3.03 million mt this week.

According to SMM survey, the average operating rate of blast furnaces stood at 92.12% last week, up 0.45 percentage point from a week ago. The daily average pig iron production of sample steel mills was 2.22 million mt, an increase of 12,300 mt. The daily production across China is estimated at 2.65 million mt, up 14,700 mt on the week. And according to SMM's prediction, the subsequent resumption of blast furnace production will still increase.

In addition, the current iron ore spot market was active as traders shipped actively and steel mills purchased on demand.

At present, the prices of iron ore were still affected by the macro front as the supply remained tight amid slow recovery of output. Driven by the rebound in downstream demand, the market sentiment improved and the demand for raw materials picked up. However, considering the high inventory of finished products in steel mills, steel mills are unlikely to increase the production in the short term. Coupled with the losses caused by rising iron ore prices, steel mills were less willing to purchase.

For the market outlook, Liang Haikuan, a researcher at Founder, said that it is necessary to pay attention to the implementation of strong expectations amid the continuous increase in social inventory of steel products. If the recovery of terminal demand is not as good as expected, the ferrous metal market may under pressure. At the same time, judging from the credit and social financing situation in January, residents’ willingness to save is still strong while their willingness to invest and apply loans is relatively weak. It will take time for the real estate sales to improve, and iron ore prices are unlikely to increase further. Looking forward to the first quarter in 2023, SMM believes that iron ore prices may remain volatile. First of all, China’s various favourable policies made the market maintain high expectations for the demand in the steel market. In addition, the restocking demand after the Chinese New Year holiday and the seasonal low of overseas shipments led to tight supply. But the market should pay attention to the supervision and price control measures taken by the Development and Reform Commission.