Seaborne iron ore prices picked up speed to exceed the $110/dmt CFR China mark Aug. 21, a three-week high, backed by a recovery in demand-supply fundamentals coupled with increasing clarity around China's steel production control and volumes, market sources told S&P Global Commodity Insights.
The Platts-assessed Iron Ore Index, or IODEX, touched $110.35/dmt CFR China Aug. 21 but was largely rangebound between $100-$110/dmt CFR China earlier in August for delivered cargoes in the 2-8 weeks forward window, S&P Global data showed. Platts IODEX was last higher on July 27 when it was assessed at $113.10/dmt.
Through the first half of August, Platts IODEX was bogged down by pockets of bearishness, falling to a low of $103.35/dmt on Aug. 10, but looks to be realigning with market fundamentals. Downstream steel mill margins drew a parabola through the month, kicking off on a positive note but slipping shortly after.
News around steel production controls cast a dark cloud over market confidence through the first half of August, albeit no official confirmation was heard among market sources.
"Steel mills have no clear [direction] on production control policies to recover market confidence," a north China-based mill source said. "Market will need some time."
However, market sources said prices were heading north due to a slew of factors including bullish macroeconomic news re-instilling confidence in the market and sustained import margins as prices appeared to have bottomed out and reached a support level.
The People's Bank of China lowered the one-year Medium-term Lending Facility rate to 2.50% from 2.65% Aug. 15, a sign that the government may be ramping up monetary easing efforts to boost a sputtering economic recovery.
On top of which, the Asian iron ore market witnessed positive import margins for around 60 consecutive days, indicating that seaborne procurements were more cost competitive compared with purchases from Chinese portside, on an import parity basis.
"The price difference [in import margins] is significant for recent seaborne trade activities to flourish," an iron ore trader said.
The utilization rate in blast furnaces was also reportedly higher, an indication of an increase in iron ore consumption for crude steel output, sources said.
"The main factor for the price increase will be the high operating rates and high crude steel output," another international iron ore trader said.
Impact on production news cut fade Market sources attributed the recent recovery in seaborne iron ore prices to the impact of steel production cuts tapering off.
"It could just be a correction [in seaborne prices] because of the overly bearish outlook from production control policies since production cuts in only specific areas allow other steel mills to increase the production instead, but I guess total production volume will not exceed [that of] 2022," a north Asia-based iron ore trader said.
A Beijing-based Chinese trader said the recent rally in iron ore prices was mainly a correction following an overly bearish market outlook previously.
"September we will see steel demand step out of the bottom as the peak season is coming. The supply of mainstream iron ore cargoes continues to be tight and port inventory has fallen to around 120 million mt level. The fundamentals of seaborne iron ore market itself are healthy," the trader said.
Meanwhile, the policy for crude steel production cuts remained uncertain in terms of its implementation and whether it will lift seaborne prices in the interim, sources said.
"The responses from the top steel-making hubs, including Hebei province and Shandong province, are key to the success of maintaining crude steel production flat from 2022. While by end-August we haven't yet seen any scaled production cut happening in Tangshan and it's questionable whether the target could still be met by the end of the year," another Beijing-based steel mill source said.
Before the close of the trading week ended Aug. 18, an uptick in the finished steel output reported in China despite news of production controls reflected resilient buying interests, credits to stable operation rates and healthy import margins. Downstream steel sales also recovered in the second decade of August, signs in which HRC and rebar margins have improved.
