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Is Iron Ore Demand Boom Topping Out?

  • May 10, 2019 09:46 PM AEST
  • Team Kalkine
Is Iron Ore Demand Boom Topping Out?

Iron ore prices are revolving around the level of $94 from past few trading sessions amid mixed fundamentals in the global market.

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The prices of Iron ore fines 62% Fe futures on Chicago Mercantile Exchange (CME) settled at US$94.24 (as on May 9th, 2019) and closed on Dalian Commodity Exchange at RMB 644.50 (as on May 9th), up by 0.23% as compared to its previous close. The prices of iron ore are currently trading at US$94.27 (as on May 10th, 2019, GMT-4 4:52 AM), up by 0.03% as compared to its previous close on CME.

In the current scenario, the steel inventory in China is either building or declining at a lesser rate.

The social and mills inventories of hot-rolled coil (HRC) steel is ramping up. As per the data, the overall HRC inventory increased by 0.2% from 5th to 9th May to stand at 3.04 million metric tonnes (as of May 9th). The increase marked a rise for the second consecutive week, as the overall (including Social and Mills) HRC stockpiles climbed by 2.7% between 25th April to 5th May.

An increase in social warehouses inventories is mainly driving the overall gain in the HRC steel inventory. As per the data, the social inventory inched up by 1.9% and stood at 2.13 million metric tonnes for the week ended May 5th, 2019. On the other hand, stock across steel mills fell by 3.6% during May 5th to 9th, as compared to the previous week to stand at 911,300 metric tonnes.

The rise in inventory along with the production ban in Tangshan could hamper the procurement of iron ore by the Chinese mills, which in turn, could exert pressure on iron ore prices.

Apart from a rise in the inventory of HRC, China is also noticing a falling rate of decline in long-steel segment. The purchase of steel-rebar (long-steel) post-Labour Day reduced the steel rebar inventories, albeit, the reduction in inventory was much less as compared to the decline on the week before the holidays in China.

As per the data, the overall rebar inventories dropped by just 1.8% and stood at 8.37 million metric tonnes (as on 9th May), as compared to a drop of 4.4% two weeks ago.

The gain in inventory coupled with a pressure from the bilateral disagreement between the United States and China could hamper the high steel prices in the global market, which in turn, in a cascade could hurt the sentiments of iron ore procurers.

In a nutshell, the steel inventory in China is picking up, and significant steelmaking provinces in China is witnessing a suspension amid smog alert, which in turn, could reduce the iron ore demand. Apart from that, the expected fall in steel prices by the market participants amid U.S-China trade war could prompt the mills to restore the production to the normal levels, which could further add to a fall in iron ore demand.

On the supply side, the vale production loss is currently indemnified by the latest shipment arrivals across the Chinese ports from Brazil, and mills are still holding high inventory of the iron ore, which could further stop them to procure more iron ore on such high prices.


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