Having increased by 2.28 percent last week, prices of ex-Australia iron ore of 62 percent Fe content for delivery to China’s Qingdao port have moved up by $0.5/mt as of today, Monday, October 22, as compared to the closing price at the end of last week, starting the current week at $72.7-73.8/mt CFR China. Additionally, following its two-week decline, inventory of iron ore at Chinese ports have increased by 1.2 percent week on week to 145.3 million mt as of October 18.
As the winter production cuts at Chinese steel mills this year are less strict as compared to 2017 and since details of the production cuts are being determined by regional governments, Chinese winter steel production is expected to be higher than in the previous year. Although winter production cuts should have been started in early October, Chinese steel mills kept their production at normal levels amid the lack of any detailed program which should have been announced by regional governments, especially by the Tangshan government. However, late last week, the Tangshan government announced the details of winter production cuts, with plans to decrease local steel mills’ outputs by 30-35 percent. The winter production cuts last year were higher at 42 percent.
As the winter production cuts in China announced so far are less strict as compared to last year, Chinese mills are expected to continue to show demand for raw material and global iron ore prices are higher than previously anticipated levels. Last week, prices of ex-Australia iron ore of 62 percent Fe content exceeded $73/mt CFR and closed the week above that price level. While prices of iron ore of 65 percent Fe content did not increase much last week, prices of medium and low grade iron ore moved up significantly.
On the other hand, China’s 6.5 percent third quarter economic growth rate was lower than expectations and this has negatively impacted the prices of steel and iron ore in the Chinese futures market. Therefore, in order to counteract signs of economic cooling, the Chinese government is trying to increase the value of its stock markets by buying shares with state funds and will likely provide subsidies to the private sector.
In the coming period, Chinese mills are expected to continue replenishment of their iron ore stocks for a little while longer, before the winter production cuts start to be implemented fully. Also, in the absence of any prospective significant declines in the Chinese steel futures market, global iron ore prices will likely maintain their upward movement in the short term.