Market Commentary
Iron ore futures edged up higher on Wednesday after authorities in Beijing seemingly softened the tone on climate ambitions. China have been looking to rein in its steel sectors, but efforts to curb steel production from last year’s record of 1.05 billion tonnes have so far been unsuccessful, with output from the first half of the year jumping 12%. This added to the expectations that significant production restrictions would be in place through the rest of the year in order to meet the goal of cutting production to below 2020 levels. However, recent mixed signals have left investors pondering if there is a change of emphasis from Beijing. On one hand, the country’s top leadership urged some easing of aggressive measures to cut carbon emissions at its Politburo meeting last week, striking a balance between the country’s economic health and its climate ambitions. This came amid mounting concerns that China’s economic expansion is decelerating after economic activity continued to ease in July. On the other hand, the China Iron & Steel Association warned over the weekend that more notable reductions in crude steel output along with government-led environmental checks would be needed in the second half.
“Some market participants expect that the government will walk away from its previous production control targets on steel. However, based on our industry discussions, we believe that the government was referring to the thermal power sector, rather than steel,” analysts at Citigroup Inc. wrote in a note. “We think that the production cuts will still be strict, and that the government also has the capability to keep steel prices in check.” Furthermore, steel productions have also been affected by power-saving measures across China, leaving steel mills in the provinces of Guangxi, Guangdong and Sichuan to reduce outputs, with an estimated loss of output of 27,000 metric tonnes per day since late July.
Having dipped to $175 in Asia, iron ore has been on recovery mode during London. Sep was seen trading up from 177.1 to 179.0 before easing off to 178.5. Aug/Sep traded 3.55 while Sep/Oct and Sep/Q1 traded 3.7 and 19.8, and thus legging in Oct/Q1 at 16.1. Spreads have since widened significantly upon hearing that Q1/Q4 and Q3/Q4 trading at 31.0 and 9.75 respectively. Q3/Q4 at 9.75 had looked very, very aggressive.
Physical Trades
Platform
Corex traded 80,000 mt Yandi fines Fe 56.7% at AM[2021-08-01,2021-08-31], 62%, -$23/mt for Sep delivery.
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