Summary
- Iron ore prices are once again running in a full sprint with prices of iron ore futures on DCE hitting a new 52-week high.
- The surge in iron ore prices is well supported by a robust steel production across China and increasing domestic consumption.
- The higher demand and improving steel prices are further prompting local steel mills in China to aggressively procure the raw material for the production.
- ASX-listed iron ore stocks are closely following the iron ore price lead with many surging and even witnessing gap up session on the exchange on 13 July 2020.
- Fortescue Metals Group Limited (ASX:FMG) hits another record high of $15.560.
Iron ore prices are under a full sprint with prices of iron ore futures on the Dalian Commodity Exchange surging from the level of RMB 730.50 per dry metric tonne (intraday low on 1 July 2020) to a new 52-week high of RMB 837.00 per dry metric tonne (as on 13 July 2020), which marks a price gain of ~ 14.57 per cent.
The spike in iron ore prices is now boosting the market confidence over ASX-listed iron ore stocks, which are also rallying with every uptick in iron ore prices.
Steel Rebar Inventory Drops
Steel rebar Inventories among both steelmakers and social warehouses continue to drop, calling for higher demand for steelmaking raw material. The robust steel production across China has provided an impetus to iron ore prices, which despite witnessing improvement across the supply chain is gushing across the international front.
To Know More, Do Read: Iron Ore Stocks Losing Charm Over Soaring Supply
In the recent past, China had injected various stimulus into its steel industry to capture a large tranche of the global steel market, leading to a production surge and higher iron ore demand.
China alone produced 92.3 million tonnes, over 62 per cent of the total global steel of 148.8 million tonnes in May 2020, up by 4.2 per cent against its steel production in the previous corresponding period (or pcp).
Furthermore, while the World Steel Association anticipates a decline in global production along with a decline in consumption, it also anticipates both production and consumption of steel in China to remain strong.
The assertion of WSA predication seems to be taking strong roots in the real-time with both production and consumption of steel across China growing stronger, leading to a surge in the iron ore demand and offsetting the impact of the improving supply chain.
- On the supply counter, about 101.42 million metric tonnes of iron ore is estimated by the market to be deboarded across 35 significant ports in China (as on 10 July 2020), up by 760,000 metric tonnes against the previous period; however, down by 2.98 million metric tonnes against pcp.
- On the demand counter, easing production restrictions at steel mills in Tangshan again fuelled the demand, inferred from a surge in daily deliveries, which reached as high as 340,000 metric tonnes.
However, many industry experts anticipate that deliveries from ports are unlikely to increase significantly in the short term as steel mills will restock only as needed at current high prices.
To Know More, Do Read: Iron Ore Futures Predisposed to China’s Steel Industry Revival
Improving Economic Conditions Supporting Steel Demand
China is showing strong signals of a post-COVID economic recovery with manufacturing, services, and non-manufacturing activities improving substantially from the onset of March 2020 through the June 2020 quarter.
China’s automobile production and sales are showing strong growth with both contouring the highest record for June 2020. As per the recent data from the China Association of Automobile Manufacturers (or CAAM), car production from June stood at 2.33 million while sales reached 2.3 million, respectively.
The car production increased by 6.3 per cent in June 2020 against the previous month to mark a y-o-y increase of 22.5 per cent. Likewise, the sales rose by 4.8 per cent in June 2020 against the previous month and marked a y-o-y surge of 14.5 per cent in May 2020.
A revival of the end-user demand is further leading towards a slower build-up in the steel inventory across China, reflecting on the robust local consumption, which coupled with a surge in steel prices in June 2020 across the international front is prompting local mills in China to aggressively procure iron ore.
However, the market anticipates a decline in steel prices over the near-term, which could prompt steel mills to procure as per the needs of production on account of high prices, which in turn, could also reduce deliveries from 35 ports in China.
Also Read: Iron Ore Exports Cross Three Digit Mark, would it Sustain?
ASX-Listed Iron Ore Stocks
ASX-listed iron ore stocks are again witnessing a strong rally with prices for some showing a gap up session on 13 July 2020.
- BHP Group Limited (ASX:BHP)
The stock soared from its recent low of $34.710 (intraday low on 22 June 2020) to the present high of $37.080 (as on 14 July 2020) to mark a price appreciation of ~ 6.8 per cent.
BHP witnessed a gap up opening of ~ 1.46 per cent and a strong trading session with the stock closing around its day’s high, up by 2.04 per cent against its previous close on the exchange on 13th July 2020, and the stock could not manage the same momentum on 14 July 2020, as the stock closed marginally up at 37.080, up by 0.29 per cent.
- Fortescue Metals Group Limited (ASX:FMG)
The pure-play iron ore miner surged to hit another record high of $15.560 (as on 14 July 2020) over the rally in iron ore market. In the recent past, the stock shattered all of its previous records over the market anticipation of higher earnings in FY20.
To Know More, Do Read: Fortescue Metals Breaking All Records!! Here’s Why?
The stock witnessed a strong trading session on 13 July 2020 with prices reaching $15.300 and ending around the day’s high, up by 3.13 per cent against its previous close on ASX, on 14 July 2020, the stock was up by 0.97 per cent and closed at $15.510.
