Having closed last week with a fluctuating trend, prices of ex-Australia iron ore of 62 percent Fe content for delivery to China’s Qingdao port decreased by $0.7/mt as of today, Monday, June 4, as compared to the closing price at the end of last week, starting the current week at $64.7-65.8/mt CFR China. Additionally, as of June 1, iron ore inventory levels at Chinese ports indicated an increase week on week, reaching 161.98 million mt, reaching record-high levels once again.
Inventories of rebar in China started last week with a decrease, which reflected the liveliness of construction activity in China and the decent levels of rebar demand. However, due to the increases in iron ore inventories at Chinese ports, iron ore prices did not record any upticks until mid-week. On Wednesday, May 30, steel prices in Chinese domestic market increased slightly, providing support for the upward movement of iron ore prices. The increase announced in the purchasing managers' index for China’s manufacturing sector in May prompted positive sentiment in the futures market, the rise in iron ore inventories hindered the sustainability of the mid-week increase in global iron ore prices. According to market sources, one of the reasons for the rises in iron ore inventories at Chinese ports are the cuts in steel production in Hebei and Jiangsu due to environmental measures, which negatively impacted iron ore shipments from ports to the steel mills.
In addition, the declines seen in domestic steel prices in China caused global iron ore prices to weaken late last week. As a result, global iron ore prices decreased by 0.23 percent in the given week.
Meanwhile, the US government announced that a 25 percent tariff on steel imports from the EU, Canada and Mexico would come into effect as of June 1, though this situation had no significant impact on iron ore prices in the futures and physical markets.
Due to the announcement that iron ore inventories at Chinese ports reached record levels on Friday, June 1, iron ore prices in the futures market have started this week with a decline of approximately 1.6 percent. Market sources state that iron ore inventories mostly consist of low grade iron ore, while the use of high grade iron ore in steel production increases efficiency by 20 percent. Also, due to the ongoing environmental measures implemented by the Chinese government, Chinese steel mills are likely to show more interest in consumption of high grade iron ore. As a result, China is expected to focus on importation of high grade rather than low grade iron ore and the downward pressure on low grade iron ore prices is expected to continue in the coming period.