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Iron Ore Prices Led Price Gains of Ferrous Metals on Strong Pre-Holiday Stockpiling

The iron ore market strengthened on December 30. DCE iron ore prices closed up by 1.56% at 845 yuan/mt, the highest in over six months, leading the price gains of ferrous metals.

In the spot market, prices of imported ore fell 5-10 yuan/mt from December 28. Prices of PB fines in Shandong stood at 830-837 yuan/wmt, and prices of PB lump at 935 yuan/wmt. Prices of PB fines stood at 843-848 yuan/wmt in Lianyungang, 865 yuan/wmt at Jiangyin port and at 842-845 yuan/wmt at major ports of Hebei.

China will manage COVID-19 with measures against Class B infectious diseases, instead of Class A infectious diseases. At the same time, the adjustment of the entry-exit epidemic prevention policy means that China’s epidemic prevention and control has entered a new stage. This will boost market sentiment. Although domestic favourable policies for real estate are unlikely to exert significant effects in the short term, the long-term demand is expected to be boosted.

Stockpiling for the production in winter by steel mills has also boosted market confidence.

On the demand side, the operating rate of blast furnaces at steel mills has declined this week. But as the output of pig iron remains high, the support for demand still exists.

As of December 28, the latest operating rates at blast furnaces stood at 92.12%, down 0.30 percentage point from a week earlier, according to SMM statistics. Capacity utilisation rates at blast furnaces stood at 92.52%, down 0.37 percentage point. Daily average pig iron output at the steel mills in the SMM survey sample fell 8,900 mt on the week to 2.21 million mt. Daily average pig iron output at domestic steel mills is estimated at 2.64 million mt, down 10,600 mt week on week.

Notably, increasing losses at steel mills from rising raw materials should undermine the production enthusiasm. Therefore, the stockpiling of iron ore by steel mills is somewhat pessimistic.

The global shipments and shipments arrivals dropped slightly this week. Although the supply has tightened slightly, the pressure has not eased significantly.

According to SMM statistics, the total global iron ore shipments last week (December 17-23) totalled 33.85 million mt, a decrease of 2% from a week earlier. Shipments from Australia to China decreased by 9.7%, while shipments from Brazil to China increased by 26%. SMM statistics showed that China’s total arriving shipments of iron ore stood at 23.7242 million mt, a decrease of 2.4%.

Moreover, inventories of building steel have accumulated noticeably.

According to SMM data, as of December 29, the total domestic construction steel inventory increased significantly. Rebar inventory increased by 4.5% from a week earlier, and steel wire inventory grew by 10.3%. On the supply side, the overall output of steel mills across China continued to decline this week and the current output is already at a low level. Some steel mills are expected to resume production after the New Year’s Day holidays. As such, the output is expected to rally. On the demand front, construction sites in some areas have been closed for the New Year’s Day holidays and COVID-19 pandemic. Trading continued to shrink this week, driving gradual stock accumulation in the market.

In general, the ongoing pre-holiday stockpiling ensured robust demand for iron ore. Cash flows in the first quarter of 2023 are optimistic. It is expected that iron ore prices will fluctuate rangebound before New Year’s Day holidays.
Source: SMM Information & Technology

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