According to China’s state planner, market participants should not “fabricate or broadcast any fake pricing information” to lower iron ore prices.
Unfortunately for Beijing’s rulers, iron ore prices seem capable of rising based on fundamentals such as increased supply and demand. Considering that the current price of 62 percent iron ore for delivery to north China is once again near to $150 a ton, as evaluated by commodities price monitoring agency Argus, it’s not hard to understand why Beijing wants to decrease the price of steel raw material.
Beijing wants to cut the price of raw materials
However, although the closing price of $146.45 per tonne on Wednesday is still below the record high of $235.55 set in May of last year, steel mills in China are still facing profitability issues, and construction costs are on the rise, putting pressure on inflation and economic expansion. NDR and SAMR recently requested iron ore pricing information from suppliers to verify their disclosures were genuine.
Beijing’s message is that it wants to enhance market monitoring and clamp down on speculation, which it blames for pushing prices up. The present iron ore surge seems to be warranted by fundamentals, notwithstanding some doubtful market commentary from Chinese minor consultancies and pricing services.
Refinitiv estimates that China imported 94.28 million tonnes of seaborne iron ore in January, while commodities experts Kpler are even more optimistic, predicting imports of 108.41 million tonnes. Even though there are discrepancies in when containers are considered to have been cleared, there is a significant correlation between the vessel tracking and port data over time. Iron ore imports in January are expected to climb from December’s official 86.07 million tonnes, however, they will still fall short of the 2021 high of 104.95 million tonnes set in November of this year.
Chinese steel imports are expected to increase, producers and dealers eagerly stocking up
Chinese steel producers and dealers are eagerly stocking up since January imports are expected to be the second-highest in at least five months. Iron ore and steel rebar stockpiles in China are also encouraging. Inventories of iron, as evaluated by SteelHome specialists, were 154.05 million tonnes in the week ending January 28, continuing a downward trend from the 2021 top of 157.5 million tonnes, which was achieved in mid-December.
While stockpiles are still more significant than they were at this time last year, they may have begun to decline sooner than expected this year as the summer building peak approaches, which is a typical seasonal trend. Stockpiles of steel rebar, on the other hand, reveal a different narrative; as of January 28, they stood at 4.92 million tonnes, almost in line with the 4.86 million.
When winter ends and mills speed up their operations to fulfill the demand for infrastructure and building projects, stockpiles proliferate. While rebar stocks in 2020 increased from 2,820,000 to 13,020,000 by mid-March, in 2021, they climbed from 3,375,000 to 11,65,000 tonnes at the start of the year.
As winter pollution limitations are lifted, it is expected that steel production will increase in the following weeks. Import demand for iron ore is expected to continue firm, especially in Beijing’s stated goal of boosting economic development.
With the cyclone season in full swing in Western Australia, which is home to the most iron ore output in the world’s largest producer, there is another possible positive element. Predicted cyclones from the Australian Bureau of Meteorology might cause significant delays in mining and transportation activities in Western Australia.
Iron ore’s positive tone will continue regardless of what the Chinese government wants, thanks to actual data on imports and stockpiles, Chinese solid steel production probability, and the possibility of weather-related supply interruptions.