The first month of 2024 saw iron ore kick-off to a strong start, mainly due to increasing prices and substantial imports by China. Looking at iron ore futures, many investors were optimistic that the world’s largest purchaser of ore would continue implementing sufficient stimulus measures to enhance demand.
Iron ore is a critical ingredient in steel manufacturing, with China remaining the largest manufacturer in the world. Investor optimism proved strong enough to overshadow China’s relatively subdued steel production data for December, as positive sentiment and several underlying factors continue to bolster the iron ore market.
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Iron Ore Futures in Singapore Shifting?
For instance, on January 26 in Singapore, iron ore contracts ended at US $135.31 per metric ton. The hike came after two weeks of declines. According to Reuters, the contract was also 1% higher than the previous January low of $133.99 per ton. In reality, ore prices have been moving upward since August 2023.
The global increases parallel China’s primary domestic price benchmark. The iron ore futures contract on the Dalian Commodity Exchange reflected this when it concluded at 988 yuan ($137.68) per ton on January 26. This marked a 6% increase from the recent low of 932.5 yuan per ton on January 18. Moreover, the Dalian contract continues to maintain an upward trend that began after it hit a low of 541.5 yuan on May 25, 2023.
Many Analysts Still Wary of China’s Ongoing Problems
Despite challenges in the housing market, iron ore imports into China continue to rise. Sectors like automotive and construction continue to drive steel production, thus fueling demand. But here’s the thing – the future remains somewhat uncertain. While China achieved a record high in 2023 in terms of importing coal and iron ore, the Evergrande real estate crisis will likely affect both imports and consumption.
When news came in of a court ruling calling for the liquidation of Evergrande last Tuesday, iron ore futures immediately declined. This was mainly due to apprehensions regarding the indebted property sector in China, the world’s leading consumer. According to this report, the drop countered the positive sentiment arising from China’s recent initiatives to address a worsening crisis and stabilize market confidence.
Meanwhile, the primary May iron ore contract on China’s Dalian Commodity Exchange (DCE) concluded daytime trading with a 1.76% decrease, settling at 979.5 yuan ($136.46) per metric ton. This marked the lowest level since January 24.
Other Factors Potentially Affecting Iron Ore Futures
In 2023, Chinese steel mills persistently changed their iron ore consumption patterns and procurement tactics due to high margin pressures. Moreover, most mills prioritized the most cost-effective blending ratios to optimize their sintering or blast furnace requirements and keep iron ore stocks low.
Some experts believe this could lead to a resurgence in the low-grade iron ore market in 2024. In line with this sentiment, many Chinese mills may opt for low-grade instead of high-grade iron ore to enhance production efficiency. The move will also cut costs and mitigate potential losses if steel prices remain weak. Elsewhere, in countries like India, low-grade iron ore exports continue. In fact, NMDC, India’s largest iron ore producer, recently increased the prices of lump ore and fines.
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Iron Ore Production Soars, Impacting Global Markets
Meanwhile, Vale SA, the second-largest global supplier of iron ore, reported a production increase in the last quarter that exceeded expectations. This development alone could potentially impact iron ore futures and prices. According to Bloomberg, the Brazilian mining powerhouse continues to intensify its production efforts, recently achieving its most robust December performance in five years.
This upswing follows strategic investments in its prized Amazonian operations and enhanced efficiency at its oldest mines, which lie in the country’s southeast region. The production figures surpassed both year-ago and previous quarter levels, with the full-year output exceeding the projected guidance.
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