Prices of ex-Australia iron ore of 62 percent Fe content for delivery to China’s Qingdao port, which moved in the range of $53.5-54/mt CFR last week, have increased by $3/mt since last Friday, starting the current week at $50.5-52/mt CFR China. As of June 20, inventory of iron ore at 33 major Chinese ports amounted to 93.03 million mt, down 2.48 million mt or 2.6 percent as compared to the inventory level recorded on June 13, as announced by China's Xinhua News Agency.
During the month of June, iron ore prices have moved on a fluctuating trend. However, due to the strengthening of the Chinese currency against the Australian dollar early this week as a result of the Brexit referendum, the iron ore futures market in China has moved up and iron ore spot market prices have started this week on an upward trend. Meanwhile, China’s State Administration of Taxation last week announced that it is carrying out special audits on tax refunds received by steel producers in Tangshan for exports of square bars. As a result, Chinese suppliers of billet to the global markets may decrease and Chinese billet prices may increase in the coming period, while scrap prices may also be impacted by this situation. Meanwhile, if tax refunds are cancelled, Chinese steel producers will have to pay export duties on billet and their input costs will increase. Accordingly, Chinese producers are expected to exert downward pressure on iron ore prices in order to preserve their profit margins. Also, a cancellation of tax refunds may negatively impact Chinese billet exports and Chinese billet producers may cut their outputs. Accordingly, demand in the global iron ore market - where at present supply is high and demand is low - may weaken further, pulling prices downwards. In the coming period, iron ore prices are expected to fluctuate on a soft trend unless there an improvement is observed in demand.
Meanwhile, BHP Billiton chief executive Andrew Mackenzie called the sharp price spike two months ago an “over-reaction” to China’s announcement of stimulus plans, stating that iron ore prices have settled down now to a price that is more realistic amid the fundamentals of supply and demand. He stated that probably one of the markets that will take longest to come back into balance is the iron ore market and a number of investment banks expect the iron ore price to head even lower as demand continues to lag behind supply. Mackenzie’s comments make the Australian federal budget forecasts of $55/mt for iron ore over the next year appear optimistic, with government revenues vulnerable to any sustained weakness in the commodity price.
On the other hand, prices of iron ore and rebar will likely be determined by supply-demand fundamentals over the next two months and gradually increasing stockpiles of both could provide downward pressure, said Wang Ying, an analyst at CCB Futures. He remarked that it is very hard for steel factories now to get orders for current stocks, while, as steel factories curb production, demand for iron ore may drop, whereas there has been a lot of supply coming from Australia and Brazil.