Why does iron need a “quick and efficient” boost from China?


Spot iron ore 62% delivery for North China, as valued by commodity price news agency Argus, closed at $116.05 a tonne on June 24, down 4.8% compared to the previous week. The benchmark price is down 27.6% since peaking at $160.30 per tonne on March 8, 2022.

The summit was prompted by fears of a supply disruption following the invasion of Ukraine by Russia, which was the fifth largest exporter of iron ore after Australia, Brazil, South Africa and Canada.

False hopes

Even though Ukraine’s war rally was short-lived, iron ore reacted positively to signs that China was set to revive economic activity following a series of major city lockdowns, imposed in the under its strict zero COVID policy.

But that optimism has faded on signs that the key construction sector, the biggest consumer of steel, is struggling to recover, given new house prices that fell for a second month in May. Property sales by floor area contracted 16.8% in the first five months of 2022 compared to the same period a year earlier.

While there has been some recovery in manufacturing, the iron ore and steel sectors will be much more focused on property and infrastructure spending as the driver of demand. Iron ore enjoyed a small rally on June 23, when it rebounded from a seven-month low of $109 a tonne on June 22 to end at $116 after Chinese President Xi Jinping said that his government would intensify policy adjustments and take more effective measures to support economic growth.

This rebound was not enough to make this week a winning week for iron ore, rather it limited the loss, which is perhaps a sign that the market now wants to see exactly what action is taken before supporting. any sustained price recovery.

Some questions arise over the state of China’s steel output, which rose 4.1% in May from April, with daily output of 3.12 million tonnes the highest since June 2021. But the May numbers are largely a history lesson, and weak steel demand and lower mill profit margins are expected to lead to lower production in June and July.

China, which produces around 55% of the world’s steel, is also seeing its stocks rise. Argus reports that inventories at major steel mills reached 20.5 million tonnes between June 11-20, up 10.7% from June 1-10 and up 30.8% compared to the same 10 days in 2021.

Slowdown in iron imports?

Growing inventories and slowing demand for steel are expected to lead to slower iron ore imports in the coming months as mills bring forward maintenance or reduce operating rates. However, there are few signs of this happening at this time, with June imports expected to be more or less in line with May.

China, which buys almost 70% of the world’s seaborne iron ore, is expected to import around 93.7 million tonnes, according to commodity analysts Kpler, while Refinitiv forecast arrivals of just over 96.2 million tonnes. Both forecasts are slightly higher than the official customs figure of 92.52 million tonnes in May, which means that a slight increase in monthly imports is to be expected.

However, it should be noted that imports in the first five months of 2022 reached 447 million tons, a decrease of 5.1% compared to the same period in 2021, which shows that the steel industry is bat to bounce back from COVID-19 lockdowns.

Overall, it appears that the iron ore and steel markets traded on the expectation of quick and effective stimulus from Beijing, particularly in the second half of the year. 2022.

While this could still happen, it seems market participants want to see real demand increase, rather than officials talking about it.



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