Iron ore prices adjust after rising in May

September iron ore futures, the most traded on the Dalian Commodity Exchange, have fallen by 4.4% to 827.5 yuan/t ($114.05/t) since the beginning of June, according to Hellenic Shipping News.

On the Singapore Exchange, quotations of basic July futures as of June 15, 2024, fell by 7.3% compared to the price as of May 31 – to $107.1/t.

In May, iron ore prices remained relatively high at $118-124 per tonne. This was driven by improved demand for steel both inside and outside of China, which in turn contributed to increased utilization of local steel mills. In particular, in May, China increased steel production by 8.1% m/m and 2.7% y/y – to 92.86 million tons, the highest monthly figure since March 2023. At the same time, steel exports also increased by 4.4% month-on-month – to 9.63 million tons.

At the end of the month, quotations began to decline as Beijing reaffirmed its intention to continue controlling steel production in 2024. According to the plan, this year China is to reduce carbon emissions in key industries by 1% compared to 2023.

Uncertainty over the proposed restrictions, coupled with the start of the low steel demand season, slightly reduced iron ore prices in early June. Reduced consumption of raw materials has led to an increase in supply and stocks in ports, which also puts pressure on prices.

«The market has reached a certain consensus that pig iron production has peaked as weakening steel demand has limited the interest of steel mills in ramping up production. In June, supplies of raw materials to China will continue to increase as mining companies strive to meet quarterly targets,» Shengda Futures analysts said.

The expected increase in supplies, coupled with a seasonal decline in steel demand, will put pressure on the iron ore market in June. Raw material quotations are likely to fall back to $100/t. At the same time, prices may be supported by additional stimulus to China’s real estate sector, although the country’s authorities have been using monetary incentives for more than a year, but there have been no significant changes in the sector.

«There is no official information on the introduction of restrictions on steel production in China, and market participants are skeptical of such an initiative. In addition, the lack of significant macroeconomic incentives and oversupply of iron ore point to further negative price dynamics,» said Andriy Glushchenko, GMK Center analyst.

HSBC Holdings, a British international commercial bank, expects iron ore prices to reach $100 per tonne in 2024. The global market remains tense despite the real estate crisis in China, which worsens the outlook for steel demand in the country, the bank said.

Capital Economics predicts that ore prices will range from $99-100/t. In the second quarter and fourth quarter, prices will be at $100/t, and in the third quarter – $99/t. By the end of next year, prices for iron ore will fall to $85/t. The key reasons for the negative forecast include expectations of weak global steel demand.