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What Does The Future Hold For Iron Ore Markets?

  • Iron ore futures have reached a new high of over $130 a ton.
  • Profitability and positive demand forecasts in China are driving the increase of iron ore prices.
  • The Chinese government is taking action to prevent hoarding, such as raising port storage fees for large cargoes and issuing warnings to traders.

By AG Metal Miner

Iron ore futures continue to climb steadily. The Singapore benchmark for iron ore futures exceeded U.S. $130 a ton on Monday. The increase was largely due to improved steel plant profitability and a positive demand forecast in China, the world’s largest steel producer. However, these increases in the price of iron ore remained restrained by regulatory worries.

The most-traded May iron ore on China’s Dalian Commodity Exchange DCIOcv1 ended daytime trade 0.5% higher, at U.S. $134.63 (929 yuan) a ton. According to Reuters, this came after the commodity posted its fifth consecutive weekly gain on Friday. On the Singapore Exchange, iron ore’s benchmark April contract SZZFJ3 was up 2.5% to U.S. $132 a ton. This represents its highest level since February 21.

Price of Iron Ore Aided by Steel Forecasts

What’s the reason for the price of iron ore rising? The primary explanation is that nearly everyone involved in the steel sector believes 2023 will be a good year for Chinese steel mills. Indeed, due to increased profits and a more positive outlook for the domestic economy, Chinese steelmakers continue to make confident moves. Most have either increased production or resumed operations after extended routine maintenance phases.

Australia’s Fortescue Metals recently predicted increased demand for iron ore in the coming year. In this case, the company cited China’s support for its property and construction sectors. Fortescue reported that it saw “really good” demand for its lower-grade iron ore after the Chinese New Year. According to its Chief Executive Fiona Hicks, this was surprising given compressed margins with steelmakers.

Many attending the China Iron and Steel Association (CISA) conference a few weeks ago were optimistic that China’s steel industry would surge due to pent-up demand following the COVID-19 pandemic.

According to experts, the anticipated rebound of the real estate market should see backing due to relative stability in other sectors. Provided examples included automobile and shipping. This high demand would likely result in higher imports of iron ore and coking coal from multiple countries, including Australia, which may also impact the price of iron ore.

The China Automobile Dealers Association has already forecasted increased car sales to the tune of about 28 million units. This is roughly comparable to the pre-COVID years. Meanwhile, the World Steel Association recently predicted that 2023 global steel consumption would reach 1.814 billion tons. Currently, it predicts around half of this total will come from China.

Chinese Authorities Looking to Curb Iron Ore Hoarding

Whatever happens, the Chinese authorities are already taking steps to control iron ore hoarding. According to this Bloomberg report, Beijing recently warned trading companies against storing iron ore in big volumes at ports. They were also considering raising port-storage fees for large-volume cargoes.

Indeed, a few days ago, China’s National Development and Reform Commission met with industry experts to discuss ways to curb “overly fast” price gains. The NDRC is key in monitoring not only iron ore prices, but market price surges for coal, soybeans, and numerous other commodities.

Meanwhile, China’s iron ore imports in the first two months of 2023 grew 7.3% from a year earlier. According to data provided by its Customs Department, China brought in 194 million tons of ore in January and February. This is significantly more than the 181.1 million tons imported over the same period in 2022.

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By Sohrab Darabshaw

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