Iron ore futures extended bullish run, despite market uncertainty and concerns over slowing Chinese steel output.
The futures of Dalian Commodity Exchange (DCE) for May delivery rose by 4.65% day-on-day or up RMB 36 to RMB 810/mt, during the day trading session on Thursday.
The rebar futures also increased by 1.74% or up RMB 84 day-on-day to RMB 4,902/mt, during the day trading session.
Tighter supply from military conflict and political instability
The future rally suggested that there were market concerns over iron supplies in view of the ongoing conflict between Russia and Ukraine, and delays from Guinea’s Simandou mine.
According to media sources, the ongoing Russia-Ukraine conflict had affected the supply of around 100 million mt of iron ore from the market with the shipping disruption off Black Sea.
Meanwhile, there was delay of another 100 million of iron ore from the Guinea’s Simandou mine, after the ruling military junta ordered the suspension of mining operation there, which was owned by Rio Tinto and Chinese consortium.
These added to potential supply woes to the iron ore market, though the Chinese steel demand were seemed to slow down even before the recent lockdowns to contain the omicron virus outbreak.
Lower Chinese daily crude production tracks on early March
Chinese mills produced 1.96 million mt per day of crude steel during Mar 1-10, down 5.7% from previous eight-day period in February 2022, according to China Iron & Steel Association (CISA).
In the meantime, mills’ steel stocks rose by 3.6% or 581,300 mt to 16.7 million mt by Mar 10 and gained 47.7% as compared to the steel inventory recorded at start of 2022.
The lower outputs contrasted with market expectation as they estimated the steel output to rebound in March, following the removal of output curbs on Two Sessions meeting and Winter Olympics.
However, the country was soon embroiled into a new wave of virus spread that resulted in stricter lockdown measures and lowered steel demand.