Prices of ex-Australia iron ore of 62 percent Fe content for delivery to China’s Qingdao port, which moved in the range of $58.5-61/mt CFR last week, have increased by $1/mt since last Friday, starting the current week at $61.5-62/mt CFR China.
Iron ore prices, which had reached their highest level of the current year at $70/mt in the latter half of April, generally fluctuated on a downward trend thereafter, before increasing by eight percent during the month of July. Meanwhile, iron ore prices had started the month of August on an upward trend due to the increases in the Chinese steel futures market, while they increased to $60/mt last Friday, August 5, having softened in the middle of the past week. Iron ore prices have started this week at $61.5-62/mt CFR China, supported by the uptrend of the Chinese steel futures market and the increases in Chinese billet prices. The recovery of demand has also supported the uptrend of prices, with iron ore demand rebounding strongly in July, jumping 8.3 percent month on month to 88.4 million mt, according to import data released by the China’s General Administration of Customs.
One of the reasons for the rising trend of the Chinese steel futures market during the past week is considered to be the proposed mergers of the country’s four largeest steel producers into two super-giants, one in the north and one in the south. The largest producer Hebei Iron & Steel Group and Shougang Steel will be combined to form Northern China Steel Group, while China’s current second-largest steelmaker Shanghai-based Baosteel Group will combine with Wuhan Iron & Steel, forming Southern China Steel Group. It is expected that these mergers will ease the oversupply problem and support economic growth in China, where crude steel production capacity totaled 1.2 billion mt in 2015. Also, it is thought that the mergers will increase the competitiveness of these big producers, while small-sized producers’ share in the export markets is expected to decrease.
Although iron ore prices have lately been moving up, the oversupply problem is still playing the key role in determining the trend of prices. With the oversupply problem expected to continue to exert pressure on iron ore prices in the coming period, iron ore prices will likely move downwards in late 2016. Meanwhile, investment banks and analysts have kept their forecasts regarding iron ore prices for the last quarter of this year at the revised levels they issued in the last week of July, maintaining their price outlooks at $40-50/mt.
Meanwhile, regarding recent news of Chinese miners seeking an antidumping probe against iron ore imports from Brazil and Australia, Lei Pingxi, vice chairman of the Metallurgical Miners' Association of China (MMAC), has told local media that it was not an official request, rather only a suggestion made by the miners.