Market Commentary
Iron ore prices were boosted by rising steel prices and robust steel margin. Steel margin have been hovering between 1250 yuan and 1300 yuan this week. The historical high was seen in last May at $1450. Furthermore, the International Monetary Fund maintained its forecast of global economic expansion at 6% this year, the fastest in four decades, despite the surge in the delta variant. That boosted sentiment and demand optimism for the raw material used in construction and manufacturing, just as signs for a tighter market balance emerged. Despite that, uncertainties around further output restrictions in China have capped any further gains. Steel mills from 12 provinces, as well as those in Shanghai and Chongqing municipality, were instructed by Chinese authorities to slash crude steel to below 2020 levels. These measures came after mills in Shandong pledged to cut overall crude steel production in 2021 by 15 million metric tonnes, or 17%. China’s steel market may see “periodical” supply shortfalls in the second half as output will fall faster than demand declines, according to Jiang Li, chief analyst at China Iron & Steel Association. As such, China is considering imposing more tariffs on steel exports as it seeks to cap domestic production and tame surging prices that have fanned concerns about inflation, with levies around 10-25% being discussed, reported Bloomberg, citing two people familiar with the matter. Meanwhile, the world’s largest iron ore producer reported a stellar half-year profit. The Rio Tinto Group’s underlying earnings stood at $12.2 billion for the six months to 30 June, according to the company statement on Wednesday, up from $4.75 billion in the same period from a year earlier.
Futures in Singapore held above $197 and briefly advanced to $200 this morning in London. Sep traded up from 195.4 to 196.0. Front-month spreads were hammered with Aug/Sep traded down from 3.80 to 3.50. Sep/Jan traded 16.90 in the early London trading before ebbing down to around 16.00. Sep/Oct also legged in 4.0. Cal 22/23 was down to 35.15.
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