Iron ore prices stabilised since last Thursday after falling for quite some time. The futures contract once recorded a gain of nearly 5%, and finally closed that day with an increase of 3.96% to 775 yuan/mt.
SMM believes that the recent round of rising iron ore prices is the result of slowing production cuts of steel mills as their profit has been restored to some extent thanks to the constantly falling ore prices earlier, which allowed the breathing spell for iron ore prices. However, SMM is still bearish on ore prices as a whole.
On the macro front, commodities prices are pressured by the pessimism on potential economic recession. But according to Blommberg analyst Simon White, despite the continued decline in energy stocks and the commodities prices, the long-term outlook for commodities remains very positive, regardless of whether there is a recession in the US.
On the fundamentals, the demand for iron ore has contracted amid blast furnace maintenance, while the ore supply has picked up, resulting in an imbalance between supply and demand.
On the demand side, a total of 31 blast furnaces were under maintenance as of June 22, affecting the daily pig iron output by 100,000 mt, greatly reducing the demand for iron ore.
In terms of supply, a total of 76 ships arrived at major Chinese ports during June 13-19, with a combined arrival of 11.45 million mt, up 1.24 million mt from the last session, but down 1.7 million mt from the same period last year. Overseas shipments are expected to rise substantially as it is around the end of their fiscal year, and the supply will edge up slightly.
As for port inventory, the total iron ore inventory across 35 ports tracked by SMM stood at 121.35 million mt as of June 24, down 0.64 million mt from a week ago and down 2.34 million m YoY. The port inventory has been dropped for 13 consecutive weeks, but the destocking speed has slowed down significantly.
To sum up, there have been blast furnace maintenance plans in north, east, central and south-west China, and the demand for imported ore has contracted. On the supply side, overseas shipments are expected to rise significantly in the last week of the second quarter, but the actual arrivals may fall in light of rainstorm and port maintenance in Australia in early June, which will underpin ore prices to some extent. Overall, iron ore prices are still likely to drop this week.
Source: SMM Information & Technology Co, Ltd.