Having started last week with an upward movement but failing to maintain this uptrend and moving downwards during the rest of the week, prices of ex-Australia iron ore of 62 percent Fe content for delivery to China’s Qingdao port decreased by $1.6/mt today, Monday, May 21, as compared to the closing price at the end of last week, starting the current week at $64.6-65.7/mt CFR China. Additionally, as of May 18, iron ore inventory levels at Chinese ports decreased by 1.2 million mt week on week, starting this week at 157.56 million mt.
The strong steel demand in the local Chinese domestic market seen in the recent weeks and the acceleration of steel production at Chinese mills had provided support for global raw material prices. Meanwhile, China's overall industrial production in April increased by the larger-than-expected margin of 7.0 percent year on year, exerting a positive impact on iron ore futures.
Despite increasing to a two month-high on Monday, April 14 amid these developments, global iron ore prices failed to sustain their high levels and switched to a downtrend in the latter days of last week. Although the average daily output of crude steel in China in April amounted to 2.56 million mt, the highest level since 2014, the weakness of real estate sales in China indicated that construction activity in the country may slow down and that domestic steel demand may decrease accordingly. Amid these contrary developments, the Chinese steel futures market moved downwards, which also negatively impacted domestic steel prices in the spot market. Accordingly, global iron ore prices decreased during the rest of last week.
The improvements in bilateral negotiations between the US and China at the weekend were not sufficient to provide support for the Chinese iron ore futures market late last week. Subsequently, since Chinese buyers have postponed their raw material bookings amid the negative sentiment in their steel market, iron ore futures have started this week with a downward movement. Meanwhile, with the approach of the rainy season in eastern and southern China, the seasonal improvement in domestic steel demand seems to be coming to an end. Also, the high inventories of raw material and steel in the Chinese market have prompted market players to be more cautious about the prospects for prices. Another indicator that Chinese iron ore demand is likely to weaken further is the Chinese government’s plan to shift the focus of its economy from heavy industry to the service sector in the future.