Iron Ore Comes to a Halt as Steel Mills Recalibrate Inventory

Iron ore prices tumbled slightly in the international market with prices of iron ore futures on the Dalian Commodity Exchange slipping from RMB 670.00 (high on 25 November 2019) to RMB 630.50 (low on 02 December 2019) as the domestic mills in China reduced the purchase over the falling steel prices across the globe.

Likewise, the prices of iron ore futures on the Chicago Mercantile Exchange fell from USD 88.46 (high on 25 November 2019) to the level of USD 86.01 (low on 29 November 2019).

The steel mills in China re-stocked low quantity of iron ore to continue the operations and avoided any aggressive buying in the wake of the falling steel prices.

The push from the local government in China supported the steel and iron ore prices previously and reduced the inventory of steel in China across the social warehouses. To Know More, Do Read: China’s Push for Infrastructure and High Steel Margins Propels ASX Iron Ore Miners

However, the fall in shipment and inventory across the 35 significant ports in China somewhat supported the iron ore prices in the international market.

The iron ore inventory across the 35 significant Chinese ports witnessed a decline of 1.16 per cent to stand at 114.17 million tonnes (as on 29 November 2019) as compared to the previous week, which in turn, marked a decline in shipment for two consecutive weeks across the Chinese ports.

The fall in inventory across China to an extent prevented a large sell-off in the wake of plunging steel prices; however, the deliveries from the ports, which represents demand in the market, declined for the week ended 29 November 2019.

The daily average deliveries from the 35 substantial ports in China fell by 11,000 metric tonnes (on a weekly basis) to stand at 2.76 million metric tonnes (as on 29 November 2019).

Not just the iron ore inventory, the steel inventory in China also fell due to various production cut and subdued demand, which further exerted pressure on the iron ore prices.

The steel inventory in China dropped by 7.73 per cent to stand at 8.77 million tonnes (as on 22 November 2019). However, this time, the steel mills in China did not rush to fill the steel shortage amid a drop in steel prices in the international market.

Steel rebar futures in China continued the weekly decline as unfavourable weather significantly dampened demand, and higher spot prices sidelined consumers. The downstream demand for steel rebar was largely subdued by the bad weather conditions, which caused heavy rainfalls in South China, and the rise in the current spot prices.

Due to slower demand and higher spot prices, some steel mills in China lowered the steel production, and steel rebar inventories across the Chinese steel mills remained 1.6 per cent lower (on a weekly basis) to stand at 1.88 million metric tonnes (as on 28 November 2019).

Likewise, the steel rebar inventory across the social warehouses in China dropped by 2.1 per cent (on a weekly basis) to stand at 2.66 million metric tonnes (as on 28 November 2019).

The LME near-month steel rebar futures contract took a downturn post a short rally, and the prices fell from USD 423 a tonne (as on 18 November 2019) to the level of USD 417.43 a tonne (as on 29 November 2019).

Many market participants believe the correction in iron ore prices to be a temporary phase, and further anticipate that the commodity is setting up for a rally amid a shortfall in supply from the Australian iron ore miners and weaker than forecasted production from the Brazilian iron ore behemoth – Vale.

To know if the charts are backing the theory of the market, Do Read: Are Bulls Taking Charge in Iron Ore? Or Is Gold Ready for a Big Move? – Ask the Charts

The West Pilbara Fines, a major product exported by the Australian Securities Exchange-listed company-Fortescue Metals Group Limited (ASX: FMG), also plunged with prices settling at RMB 621 per wet metric tonne, down by RMB 43 as compared to the IO9I62 fines.

Despite the slight difference from the IOPI62 index, the share price of the company surged on the exchange to make a high of $10.035 (as on 2 December 2019).

Other iron ore miners such as BHP Group Limited (ASX: BHP), Rio Tinto Limited (ASX: RIO), Champion Iron Limited (ASX: CIA), who have major customer base in China surged despite the fall in iron ore prices as the investors reckoned that the iron ore demand is only tepid for short-term, and many physical traders believed that the mills are interested in re-stocking; however, not very aggressively, but, even a slight interest along with the fall in inventory is sufficient to support the iron ore prices in China.

Rio Tinto Limited (ASX: RIO)

The stock of the company surged from $92.810 (low on 21 November 2019) to the level of $98.510 (high on 28 November 2019), from where the stock slightly fell to $96.770 (29 November 2019). However, currently, the stock has gained some momentum and is trading in positive territory from two trading sessions.

The stock last traded at $96.680 with a day’s high of $97.100 (as on 3 December 2019 02:45 PM AEST).

BHP Group Limited (ASX: BHP)

The stock is in an upswing, and the prices reached $38.690 on 29 November 2019; however, currently, the share is witnessing a slight correction with prices currently trading down at $37.725 (as on 3 December 2019 02:47 PM AEST), down by 1.55 per cent against its previous close on ASX.

Champion Iron Limited (ASX: CIA)

Post a large downside rally, the stock of the company finally recovered to test a strong hurdle of $2.1500. The stock fell from $3.1500 (high on 19 June 2019) to the level of $1.5300 (low on 12 November 2019), which represented a fall of over 51 per cent.

However, recently the stock has started showing some up move with prices recovering from $1.5300 to the present high of $2.100 (as on 3 December 2019 02:52 PM AEST).

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