Having closed the previous week with an increase, 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 on Monday, June 19, compared to last Friday, starting the current week at $55.75-56.85/mt CFR China. As of June 12, inventory of iron ore at 33 major Chinese ports amounted to 118.76 million mt, up 1.76 million mt or 1.5 percent compared to the inventory level recorded on June 5, as announced by China's Xinhua News Agency.
Last week, Chinese mills’ weak demand for iron ore as well as rising iron ore inventories at Chinese ports put pressure on global iron ore prices, which moved down by 1.2 percent.
At the start of this week, a slight recovery in Chinese semi-finished and finished steel demand and in steel futures prices has resulted in an uptick in iron ore prices. However, market sources state that iron ore inventories at ports are quite high and that Chinese steel mills are reluctant to restock given the abundant iron ore supply. According to market sources, the recovery seen in Chinese domestic demand may be short-lived, while iron ore prices are expected to come under further pressure and will likely continue to move down on a fluctuating trend.
Meanwhile, the investment bank Citi stated it has cut its iron ore price forecasts for this year and next, due to expanding supply and said the iron ore price should fall below $45/mt for the market to rebalance. Analysts at Citi see further downside risks, saying they expect an iron ore surplus of more than 100 million mt this year, on top of a surplus of over 60 million mt in 2016, citing expansion projects by top miner Vale in Brazil and by the Roy Hill mine in Australia.
"As prices approach $50/mt, we may start to see lower output from Russia, Canada and Ukraine. When prices approach $45/mt, high-cost Australian and Brazilian miners could be under pressure to cut (their production)," Citi said. Citi has revised down its 2017 average price forecast to $61/mt from $70/mt, and to $50/mt from $53/mt for next year. The bank expects iron ore stocks at Chinese ports, currently near their highest level in 13 years, to peak in the second half of the year.
"We anticipate steel mills' restocking activities to gradually weaken, not only because expectations on a bearish iron ore outlook have grown, but also because Chinese banks have tightened credit lines to large steel mills and therefore mills are forced to purchase ores in cash," the Citi analysts said.