Recently, black futures varieties ushered in a general rise, including iron ore futures prices is a standout. February 20 day close, iron ore main contract at 917 yuan/ton, day up 3.21%.
It is understood that since February 14, iron ore futures prices from 835 yuan/ton rose all the way and broke the 900 yuan mark, 6 trading days up by more than 8%, a new high of more than 9 months.
Qiu Yihong, an analyst at Haitong Futures, told the China Times: “Iron ore was the most prominent performer in the mid-February rally, and was the only one in the black category to hit a new high on January 30. The reason for this round of futures to hit a new high is not only the boost of demand recovery under the background of stable macro growth, but also related to the rise of the outside iron ore futures price.”
February 21 15 o ‘clock, iron ore main contract to close at 919 yuan/ton. China Steel Futures analyst Zhao Yi believes that the current has entered the demand falsification period, which may last until the middle and late April, whether the demand can meet expectations, or even exceed expectations, is still unknown.
Steel mills are running at higher rates
HSBC raised its forecast for China’s gross domestic product (GDP) this year to 5.6 percent from 5 percent, the Hong Kong Economic Times reported on Feb. 17, saying China is reopening faster than expected and pent-up demand for services and goods will lead to a recovery. The worst of the pandemic is over and will not be a drag on first-quarter economic performance, while consumption and excess savings may provide an additional boost to accelerate the recovery and get the economy on track, the HSBC report said.
China, meanwhile, is expected to grow 5.7 percent this year, making it the main engine of global growth, according to KPMG. According to the National Bureau of Statistics, China’s manufacturing PMI in January 2023 was 50.1%, up 3.1 percentage points from December 2022. The non-manufacturing PMI was 54.4%, up 12.8 percentage points from December 2022. Industry insiders said that through the statistics bureau’s data, the economy is recovering strongly.
“The main logic affecting the black system in the near future is the start-up of downstream demand. According to the research of a third party institution, as of February 14, 2023, the national construction enterprises started to resume work rate of 76.5%, a month-on-month increase of 38.1 percentage points.” China Steel futures analyst Zhao Yi told the Chinese Times reporter said.
According to the data, from February 10 to February 17, the operating rate of the country’s 247 steel mills was 79.54%, increasing by 1.12% week on week and 9.96% year on year. The utilization rate of blast furnace ironmaking capacity was 85.75%, which increased by 0.82% compared with last month and 10.31% compared with last year. The profit rate of steel mill was 35.93%, down 2.60% from the previous month and 45.02% from the previous year. The average daily output of molten iron was 2,308,100 tons, an increase of 21,500 tons quarter-on-quarter and 278,800 tons year-on-year. Average daily molten iron production has recovered for six consecutive weeks, up 4.54% since the beginning of the year. The national building materials transaction volume also recovered from 96,900 tons on February 10 to 20,100 tons on February 20.
According to Zhao Yi, from the above data, compared with the first two weeks after the Spring Festival, the rate of business resumption of downstream enterprises after the Lantern Festival on the 15th day of the first lunar month increased significantly. Demand started to drive up the black sector, also led iron ore futures prices to a record high.
However, some insiders said that although the price of the main contract of iron ore futures continued to rise this year, the overall performance of its price and increase is still weaker than the Platts index, SGX and port spot price, indicating that the price performance of the Chinese futures market is still stable compared with the external price. At the same time, the domestic iron ore futures adopt the physical delivery system, and the regulatory risk control measures are relatively strict. The market runs more smoothly and orderly. In most cases, the futures price and increase are lower than the Platts index and overseas derivatives.
For iron ore skyrocketing, Dalian Exchange recently issued a market risk warning notice: recently, the impact of the market operation of more uncertain factors, iron ore and other varieties of price volatility; All market entities are invited to participate rationally and in compliance, prevent and control risks, and ensure the smooth operation of the market. The exchange will continue to strengthen daily supervision, seriously investigate and punish all kinds of violations, and maintain market order.
With the rise in iron ore prices, is it possible that there is an excessive overhang of iron ore inventories at ports? How is the situation of iron ore shipments at ports? In response, Qiu Yihong told the China Times that iron ore inventories at Port 45 rose to 141,107,200 tons at the end of last week, an increase of 1,004,400 tons on a week-on-week basis and a decrease of 19,233,300 tons year-on-year. The number of days under the port continued to weaken, has fallen to the lowest level in the same period. In terms of mineral types, the stock of fine ore is basically below the average level of the same period. Last week, the stock of lump ore and pellet ore rose most obviously. The stock of lump ore and pellet ore was at the high level of the same period, and the stock of iron concentrate powder was stable at the high level of the same period.
“From the source point of view, the main increase last week is contributed by Australia and Brazil, so far this year the most clear upward trend of oscillation, but there is still a big gap compared with last year, last week Australian and Brazilian mine inventory basic stable performance, Australian mine is still at the low level of the same period, inventory pressure is relatively light, high quality Brazilian mine inventory is still stable at the high level of the same period, but also far lower than the same period of last year. ” Qiu Yihong said.
Has entered the demand falsification period
What’s next for iron ore prices? ‘From our point of view, there are two main factors that will affect iron ore futures prices,’ Qiu Yihong told the China Times. ‘One is the recovery of demand, and the other is policy regulation.’ Iron ore demand to a greater extent still depends on profit adjustment. Profit margins of 247 steel mills have risen for five straight years this year, recovering from 19.91 per cent to a peak of 38.53 per cent, but fell back to 35.93 per cent last week.
“This is compared with the gap in previous years is still very large, also shows that the process of steel profits recovery is still full of certain thorns obstacles, the recovery process is difficult to be achieved overnight, and from the steel mill imported mine available days of historical low situation, steel mill profits always hovering on the edge of profit and loss, and this is still affecting the steel mill replenishment rhythm, replenishment rhythm is still slow.” Qiu Yihong said.
Data show that the current 247 steel mills imported iron ore inventory of 92.371 million tons, the ratio of storage and consumption of 32.67 days, while 64 steel mills imported the average days of only 18 days, are in the historical period of absolute low, low steel raw material inventory has become the largest potential increase in iron ore demand after the resumption of production.

Qiu Yihong said, from last week steel production and inventory data can also be confirmed. On the one hand, the overall recovery of long process production is more obvious signs of obstruction, the production of rebar in long process basically did not increase significantly, and the recovery of rebar production after the Spring Festival is basically contributed by the resumption of production in short process. On the other hand, the accumulated pressure of steel mills is on the upper level, so the willingness to resume production in a long process will also be challenged. In addition, scrap is still at a discount to the cost of molten iron, the advantage of the cost performance of scrap will also be a certain limit to the demand for iron ore, so the recovery of iron ore demand space is still expected to be under pressure, which is also a major factor affecting the future price of iron ore futures.

The data also showed that in the week of Feb 16, the 64 sinters counted by Mysteel had 18 days available, which was unchanged from the previous week and down 13 days year-on-year. “In the short to medium term, both supply and demand for iron ore are picking up. The supply side, is still the mainstream mine shipment off-season, the supply low has been shown, the future can pick up. On the demand side, the trend of production and work resumption of downstream enterprises after the Spring Festival remains unchanged. The real test is whether the reality can meet the expectations.” Qiu Yihong said.

It is worth noting that Zhao Yi told the China Times that January was a weak season for demand, but iron ore and finished materials remained strong, which is behind the strong expectations after the Spring Festival holiday. At present, it has entered the demand falsification period, which may last until mid-to-late April. After the post-holiday resumption of production and work, it is still unknown whether the demand in March and April can meet or even exceed the expectation.

The fitting of expectation and reality will be the key to influence the black industry chain in the future. Zhao Yi said, in the iron ore futures price has included the warm expectations, if you want to continue the upward trend, need a more realistic terminal recovery to confirm; Otherwise, iron ore futures prices face back pressure.

“Iron ore futures prices are likely to hit new highs in the short term. If you look at the longer term, steel mills profit is low, the property industry trend downward has not changed, iron ore futures do not have the conditions to continue to rise in the downstream uncertain situation.” Zhao Yi said.