Market Commentary
Iron ore futures advanced on Tuesday as fresh imports data indicates resilient demand. China’s inbound shipments of the steelmaking raw material were relatively stable in June, compared with the previous month, pointing to steady demand in the world’s top steel producer. Iron ore imports stood at 89.4 million tonnes, down 0.4% month-on-month, the lowest in 13. The import of steel in the first half of the year was similar to that of last year but export increased by 21.25% as global demand recovers. Investment Bank Goldman Sachs Group Inc. believes that the iron ore market will not see a clear, sustained surplus until 2023 as the market faces “lack of material supply response to high prices”. Unlike previous bull markets, the investment bank sees no indication that major miners plan to accelerate investment in iron ore projects while China’s steel demand this year has shown “immense strength”. Credit Suisse also upgraded its forecast for the year by 20%. Consultancy firm, Wood Mackenzie, however, predicts a price correction in the second half of the year as a result of tightening of credit conditions in China which the consultancy firm believes will have a knock-on effect on construction. Wood Mackenzie expects the average price of spot iron ore to stand at around $185 per metric tonne in the third quarter, down from an estimated $200 in the quarter that just passed.
Meanwhile, analysts at Citigroup expects a “constructive” premium between 65% and 62% fines for the rest of the year. Government-oriented steel production controls are likely to stay in the second half of the year which limits mills’ capacity to ramp up their output but Citi Group commodities strategist, Tracy Liao, said that mills can capture the potential rising steelmaking margins and maximize their productivity by producing better quality products. Market sentiment is also buoyed by the recent announcement of the lowering of the reserve requirement ratio by 0.5%, effective from 15 July, as it is poised to provide easier access to credit. The People’s Bank of China said that the releasing of funds will be partially used to offset the maturity of its medium lending facility. Investors are also casting a watchful eye to the Singapore Iron Ore Forum as they scan for fresh insights on the supply-and-demand outlook on the iron ore market. Executives from Rio Tinto, BHP and Brazil’s Vale are all scheduled to speak at the event, held online this year.
Futures in Singapore moved above $210 during London morning. Aug was seen trading up from 210.0 to as high as 211.00 before easing off to trade 210.35 and then 210.20. Sep also traded up from 203.45 to 203.85. Jul/Aug traded at 7.00 while Aug/Sep was crushed this morning. Aug/Sep was 6.50/6.60 early in the morning before getting crushed to as low as around 6.25.
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