Iron ore prices are rising amid Chinese steelmakers’ activity

Iron ore futures on the Dalian Commodity Exchange for the week of September 20-27, 2022, increased by 3% compared to the previous week – to 718.5 yuan/t ($100.36/t). This is evidenced by the Nasdaq’s data.

Iron ore prices increased on the background of capacity expansion by one of China’s largest steelmakers. Steelworkers are increasing utilization levels, expecting to make money during the growth of construction activity in the peak season of September-October.

In addition, steel mills began to replenish iron ore stocks ahead of the week-long celebration of China’s National Day, which begins on October 1.

The increase in market activity indicates that steelmakers are hopeful that demand for steel in China will recover in the near future. The market’s optimism is also fueled by the intentions of the Chinese authorities to introduce additional incentives to support the country’s economy in the conditions of COVID-19.

In mid-September 2022, average daily steel output at Chinese steel mills increased by 2.23% from the start of the month as the industry prepares for the peak construction season.

In August 2022, China increased steel production by 3% compared to the previous month. The growth of the indicator became possible thanks to the improvement of demand and the restoration of the steel plants’ work.

Import of iron ore to China in August 2022 increased by 5.4% compared to the previous month – up to 96.2 million tons. In August 2022, imports of ferrous metals to China decreased by 1.3% year-on-year. In January-August 2022, the country’s steelmakers reduced imports of iron ore by 3.1% y/y – to 772.9 million tons.

As GMK Center reported earlier, for the week of September 12-19, 2022 iron ore prices on the Dalian Commodity Exchange fell by 4.5% compared to the previous week – to 705.5 yuan/t ($100.61/t). Declining sales in China’s real estate market, weak demand and the impact of COVID-19 are dragging down iron ore futures.

Investment bank Goldman Sachs predicts a drop in the price of iron ore to $85/t by the end of 2022. At the same time, analysts previously expected prices at the level of $110/t.

China is the largest producer of steel in the world. In 2021, Chinese steelmakers reduced steel production by 3% compared to 2020 – to 1.03 billion tons. In 2022, the country plans to continue reducing production.