Since November 19, in anticipation of the resumption of production, iron ore has ushered in a long-lost rise in the market. Although the production of molten iron in the past two weeks did not support the expected resumption of production, and iron ore has fallen, thanks to multiple factors, the main iron ore contract 2205 continued to rise in one fell swoop to regain the ground lost in early November.
Multiple factors help
On the whole, the factors driving the rise of iron ore are expected to resume production, absolute prices, structural contradictions between varieties, and epidemics.
Although the prices of finished products have fallen, as coke has been raised for eight consecutive rounds and iron ore prices have gradually approached historical lows, the sharp drop in raw material costs has led to a rebound in steel mill profits. In addition, this year’s crude steel output leveling target has no pressure in December. In addition, the weather in the north has improved compared with the previous period. Tangshan City will lift the heavy pollution weather level II response from 12:00 on November 30. In theory, steel mills are able to increase production in December and March. In the spot market, data from my iron and steel website shows that there are currently almost no pellets available in Port 15. With the decline in coal prices and lower sintering costs, it is time for steel mills to make up for the mainstream fines that have been at historically low levels. In addition, this round of the epidemic caused by the Omi Keron mutant strain may have an impact on domestic iron ore imports.
High inventory still needs to be vigilant
As of December 3, 45 ports of imported iron ore stocks were 154.5693 million tons, an increase of 2.0546 million tons on a week-on-week basis, showing a continuing trend of accumulation. Among them, trade ore inventory was 91.79 million tons, an increase of 657,000 tons on a week-on-week basis, an increase of 52.3% year-on-year. With such a high inventory, any subsequent events or emotional outbursts can easily trigger panic selling. This is a risk point that needs to be considered.
Judging from the data on the port dredging volume on November 25, although the transaction volume improved significantly last week, the port dredging volume did not rise but declined, indicating that the speculative demand in the market exceeded actual demand. The average daily output of molten iron remained at around 2.01 million tons for three weeks. And the poor port volume data on December 3 also confirmed this point. From the perspective of motives for resuming production, the spot price of ports rose last week and the stocks of steel mills and ports fell, indicating that steel mills have a certain negative feedback on the price increase of trade ore. In terms of conditions for the resumption of production, there are still many uncertain factors in the northern weather, and it remains to be seen whether the resumption of production expectations can be reflected in reality.
Looking back at the end of October and the beginning of November, the market was at the same level as it is now. In terms of inventory, the current inventory is relatively high; in terms of demand, the average daily output of molten iron at that time was 2.11 million tons. If the average daily output of molten iron in the next few weeks still does not exceed the level of 2.1 million tons, only speculative demand and market sentiment will improve. It cannot provide strong support for ore prices.
Based on the above analysis, it is expected that iron ore futures will continue to oscillate and run weakly. Under the current circumstances, it is not cost-effective to continue to do more iron ore.
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