Prices of ex-Australia iron ore of 62 percent Fe content for delivery to China’s Qingdao port, which closed last week with a slight softening, have increased by $0.8/mt since last Friday, starting the current week at $78.2-78.9/mt CFR China. As of November 28, inventory of iron ore at 33 major Chinese ports amounted to 101.15 million mt, up 120,000 mt or 0.1 percent compared to the inventory level recorded on November 21, as announced by China's Xinhua News Agency.
During the past week, iron ore prices indicated daily fluctuations in the range of $5-6/mt, reflecting the sharp fluctuations in the Chinese futures market. However, there is a common view in the market that these fluctuations are speculative and do not reflect the situation in the Chinese steel market. Also, Dalian Commodity Exchange and Shanghai Futures Exchange have announced new regulations in order to restrain speculative activity.
In the short term, no big changes are likely to be seen in the Chinese steel market until after the Chinese New Year holiday (Jan. 27-Feb. 2, 2017)), while iron ore prices are expected to fluctuate within a limited range if the speculative movements in the steel and raw material futures markets come to an end.
However, many investment banks remain sceptical that the current market euphoria can continue, with Macquarie the latest to warn of risks to Chinese demand for commodities. Macquarie analysts state that China’s economic performance, and commodity demand especially, has seen a dramatic turnaround this year. Twelve months ago, the concerns regarding China were over a potential hard landing; currently market participants are more worried about overheating. Macquarie analysts underlined that, while demand conditions in China have clearly been stronger than expected, they are increasingly worried that Beijing may become steadily more aggressive in tightening their macro policy, given their particular focus on inflationary pressures. Also, Macquarie sees a further downside in prices for bulk commodities, even after iron ore and coking coal prices edged back from recent peaks.