Iron ore futures rallied above $98 on Tuesday on better Chinese outlook and ongoing supply concerns from Brazil. Iron ore port inventories have fallen to a four-year low as China moved past the coronavirus pandemic, prompting Chinese steel mills to ramp up output, boosting demand for iron ore.
The latest Purchasing Manager’s Index for China’s steel mills showed that the industry was back in expansion last month. Both figures for output and new orders edged above 50.0 in May. Meanwhile, a new round of environmental curbs this month in China’ top steel-producing city of Tangshan may lead to further reduction in steel inventories and drive steel prices further up., said Helen Lau, analyst at Argonaut Securities.
“Looking ahead, (China’s) steel demand will continue to be underpinned by the infrastructure and property sectors,” she said in a note. “This, combined with supply risks from Brazil, imply that iron ore may continue to test new highs.”
The coronavirus pandemic is showing no signs of abating in Brazil as the nation becomes the second worst-hit country in the world, prompting fears of mine closures and further movement restrictions which will further tighten global iron ore supply.
This latest round of rally, combined with slow rebound of rebar and HRC, have seen steel margin in Northern China narrowed down to close to zero. Pig iron utilization is thought to be near its peak level, both yearly and seasonally; currently at 91.38% as per last week. Iron ore growth may slow down, and a correction cannot be ruled out if steel margin continues to be running at close to break-even levels.
Iron ore futures in Singapore were trading over $2 higher in Asia but the momentum has since stalled during London morning. Jul was seen trading in tight ranges between 98.0 and 98.2 for most of the morning. Jun traded up from 99.8 to 100.45. (FIS)