Iron ore prices have enjoyed a two-day winning streak, buoyed by growing confidence in a surge of demand from China, the world’s top consumer of the steelmaking ingredient. Analysts anticipate a significant increase in Chinese steel production in the coming weeks.
Rising Hopes Fueled by China
The most-traded September iron ore contract on China’s Dalian Commodity Exchange (DCE) closed Tuesday at 815.5 yuan ($112.73) per metric ton, a jump of 5.63%. This marks the highest level since late March, following Monday’s gain of over 3%. The benchmark May iron ore contract on the Singapore Exchange also rose considerably, reaching $107.95 a ton, its highest point since March 26th.
Industry experts attribute this rally to an overall improvement in China’s economic outlook. Recent policy announcements, including measures to control crude steel output, have instilled confidence in the market.
While analysts at Huatai Futures predict a near-term rise in steel production due to improved margins, they warn of potential headwinds. High stockpiles of iron ore at ports and higher-than-usual shipments could dampen the price increase. Additionally, some analysts believe steelmakers may ramp up production to generate cash flow before mandatory production cuts are implemented later in 2024.
Post-Holiday Restock Boosts Market Sentiment
The flurry of post-holiday restocking activity by Chinese steelmakers further bolstered market sentiment on Tuesday. Consultancy Mysteel reports that iron ore transaction volumes at major ports skyrocketed to 1.63 million tons on Monday, compared to a mere 305,000 tons on Sunday, a workday in China.
The cost competitiveness of iron ore compared to steel scrap is another factor driving demand. Despite remaining thin, improved steel margins make iron ore a more attractive feedstock option. This sentiment is reflected in gains for other steelmaking ingredients on the DCE. Coking coal and coke prices rose 3.36% and 2.5% respectively, and steel benchmarks on the Shanghai Futures Exchange also saw an across-the-board increase.
Looking Ahead: A Cautiously Optimistic Outlook
The future trajectory of the iron ore market hinges on several factors, including the effectiveness of China’s production control measures and the ongoing balance between supply and demand. However, the recent price surge suggests a cautiously optimistic outlook for the steelmaking industry in the near term. While challenges remain, the improved market sentiment points towards a potential period of growth, fueled by China’s resurgent demand.
Source: Mining.com
