Having remained mostly stable last week, prices of ex-Australia iron ore with 62 percent Fe content for delivery to China’s Qingdao port have increased by $0.17/mt on the first working day of the current week to $93.78-94.88/mt CFR China.
Early last week, Chinese liquid steel producers accelerated their production and accordingly increased their iron ore stock bookings before the Labor Day holiday (May 1-5). As a result, global iron ore prices moved upwards on the first days of the week and followed a sideways trend as of May 1.
The Chinese steel futures markets have started the current week with a decline, due to US President Donald Trump’s announcement that he is planning to increase tariffs on $200 billion worth of Chinese goods by the end of the week. In late February, Trump’s plans to increase the tariffs in question had been postponed and, due to market expectations that China and the US would come to an agreement, sentiment in Chinese steel markets became positive. Also given today’s news that China is considering canceling its trade talks with US officials, sentiment in the Chinese domestic market has worsened and buyers have started to adopt a cautious stance in terms of new bookings. Although no significant decline is expected in domestic steel prices in China since the sintering activity of steel mills in seven districts in Tangshan will be reduced by half in late May, steel prices may decrease slightly due to the approaching summer season and when the US increases the tariffs in line with its plans. Under these market conditions, Chinese liquid steel producers are likely to exert pressure on iron ore prices in order to preserve their profit margins in the short term.
Meanwhile, according to Citibank’s analysts, supply disruptions in Brazil, robust Chinese steel demand and improved profitability levels at Chinese steel mills may keep iron ore prices at strong levels this year. “We are staying bullish on near-term iron ore prices, targeting $100/mt within one to three months, as the market is still digesting the aftermath of the Brumadinho tragedy,” Citibank saidt. Over the medium-term, Citibank stated that the improved profitability at Chinese steel mills and robust demand for steel products within China will keep the benchmark price at elevated levels. Stating that China steel mill margins are now at around $50/mt, Citibank said that, with robust demand, they are expecting iron ore prices to average $86/mt this year. As regards the longer-term outlook, Citibank is forecasting the benchmark price for iron ore to average $70/mt next year.