Iron ore prices increased for a second consecutive session on Thursday, September 17, as Chinese steelmakers stepped up purchases of seaborne material ahead of the National Day holiday, although declining steel margins continued to weigh on the demand outlook, according to media reports.
The most-traded iron ore futures contract on China's Dalian Commodity Exchange (DCE) closed daytime trading 0.28 percent higher at RMB 710.5/mt ($105.92/mt), remaining 4.6 percent below the multi-week high of RMB 745/mt recorded on September 8. Meanwhile, the benchmark October iron ore contract on the Singapore Exchange increased by 0.52 percent to $96.3/mt as of 07:51 GMT, remaining below the psychologically important $100/mt level for the sixth consecutive session.
Seaborne iron ore transactions increase ahead of National Day holiday
Several Chinese steelmakers booked seaborne cargoes ahead of the week-long National Day holiday on October 1-7. According to data from consultancy Mysteel, daily seaborne iron ore transaction volumes increased by 43 percent day on day to 1.41 million mt on Wednesday.
Goldman Sachs analysts stated that iron ore prices of $90-95/mt should provide solid downside support in the near term given current high freight rates. However, they expect Chinese steel production and iron ore demand to weaken in October-November as low-cost seaborne supply from major producers and the Simandou project increases.
Weak steel margins limit upside for iron ore prices
Meanwhile, shrinking steel margins could discourage mills from increasing production and slow their restocking activity, limiting the upside potential for iron ore prices. According to Zhengxin Futures analysts, actual steel demand has yet to show clear signs of recovery and has fallen short of previous expectations, while production cuts have continued as steelmakers' losses have increased.
Other steelmaking raw materials reversed earlier gains, with coking coal and coke futures on the DCE decreasing by 1.65 percent and 0.63 percent, respectively. Steel futures on the Shanghai Futures Exchange were largely stable. Rebar futures declined by 0.13 percent and hot rolled coil futures edged down by 0.12 percent, while stainless steel futures increased by one percent.
Higher iron ore inventories and arrivals weigh on market
As SteelOrbis reported previously, molten iron output has declined slightly amid declining profitability on the steelmakers' side, weakening demand for iron ore. Meanwhile, iron ore inventories have increased, exerting a negative impact on prices. Iron ore arrivals at ports are expected to increase in the coming week, which will result in loose supply in the market and negatively affect prices.
