Prices of ex-Australia iron ore of 62 percent Fe content for delivery to China’s Qingdao port, which moved in the range of $59-62/mt CFR last week, have trended sideways since last Friday, starting the current week at $59-59.5/mt CFR China. As of August 22, inventory of iron ore at 33 major Chinese ports amounted to 102.51 million mt, up 940,000 mt or 0.92 percent compared to the inventory level recorded on August 15, as announced by China's Xinhua News Agency.
Following the Tangshan government’s announcement in mid-August of local steel production cuts in the range of 30-50 percent during the August 16-31 period in order to tackle environmental pollution, Chinese billet prices moved upwards, providing support also for increases in iron ore prices. Furthermore, anticipated discussions at the G20 summit in Hangzhou on September 4-5 regarding the oversupply problem in the Chinese steel industry are being considered as a possible prelude to new production cuts at Chinese steel mills. Accordingly, buyers in the local Chinese market have increased their semi-finished and finished steel purchases in order to avoid any future tightness of supply. Meanwhile, steel production cuts are expected to reduce China’s demand for iron ore, which is already at low levels, and it is though that iron ore prices would move down accordingly. In this overall context, the upward movement of iron ore prices throughout the month of August has remained limited and downticks in prices were also observed on some days during the month due to expectations of lower demand because of steel capacity cuts.
Investment bank Morgan Stanley said in a research note last week that the direct impact of the G-20 meeting on China's iron ore market will be minimal, but, combined with lower construction activity, it could cause a sell-off in the futures market. Also, as regards the G20 Summit and its impact on the iron ore market, Morgan Stanley analysts stated that local governments in the affected region will impose a number of restrictions on several industries to help improve air quality - including the suspension of most construction activities, restrictions on ore sintering and also on cement, petrochemical and coke production, all of which is expected to have a minimal effect on Chinese steel production for the year as a whole, though there could be some sudden trading fluctuations.
Meanwhile, companies such as Citi Group and Moody’s have shared their forecasts regarding iron ore prices for the second half of 2016. According to Citi Group, iron ore prices are expected to average at $55/mt in the second half of 2016, before falling in 2017 to an average of $45/mt. Also, iron ore prices still have to navigate through the ongoing rally which may persist until early October thanks to the upcoming peak season in construction, and this might allow prices to average $59/mt for the third quarter of this year, according to Citi Group. Meanwhile, Moody’s warned that iron ore prices will likely remain volatile and could fall further, with its base level for the steelmaking ingredient set at around $45/mt. Australian miner Fortescue’s lower costs and debt should help it better manage this volatility, Moody’s said.