Following their fluctuating trend last week, prices of ex-Australia iron ore of 62 percent Fe content for delivery to China’s Qingdao port have decreased by $2.4/mt today, Monday, March 19, as compared to Friday's closing price, starting the current week at $66.77-67.42/mt CFR China. Meanwhile, as of March 16, stockpiles of imported iron ore at Chinese ports reached 159.2 million mt.
Although global iron ore prices indicated some upward movement in the middle of last week after decreasing in the previous week, with the decline recorded on Friday, March 16, they lost all their mid-week gains. As a result, global iron ore prices closed last week with a 3.55 percent loss as compared to price levels recorded on Monday, March 12.
In the January-February period of the current year, China’s crude steel production increased by 5.9 percent year on year, as announced by China's National Bureau of Statistics (NBS) in the middle of last week. The announcement of China’s increased steel production created positive sentiment in the market, causing a rise in Chinese steel futures contract prices, which in turn pushed up iron ore prices, though the resulting positive sentiment was short-lived and iron ore prices started to fall once again last Friday. The high levels of iron ore inventories as well as the lack of a sufficient revival in domestic steel demand in China have both contributed to the sharp falls seen in global iron ore quotations, which had initially been expected to maintain their high levels in March. Although inventories in China mostly consist of low grade iron ore, high grades are preferred in steel production in order to limit air pollution problems. As a result, the inventories of low grade iron ore are not being digested and are putting downward pressure on iron ore prices.
As air pollution is an important problem in China and also given the official announcement of an eight-month extension of the steel production cuts in Tangshan, an increase in low grade iron ore usage in steel production is not foreseen. Instead, the usage of high grade iron ore is expected to continue in the coming period in order to increase productivity in steel sector. Market sources state that, under the current circumstances, it may be necessary to sell the iron ore inventories in China (mostly low grade ore) at a loss in order to deplete them and thereby reduce the downward pressure on iron ore prices.
Since the future performance of domestic steel demand in China will have a significant impact on the trend of Chinese steel futures contract prices, global iron ore prices are expected to be largely influenced by the domestic steel demand seen in China in the coming period.