Asian iron ore near-term prices unlikely to rebound on subdued spot demand

Seaborne iron ore prices after declining significantly from their 19-month high level are unlikely to rebound in the near term as procurement demand remains subdued amid poor finished steel output margins, according to market sources.

Platts assessed the 62% Fe Iron Ore Index at $127.65/dry mt CFR North China Jan. 17, down from a 19-month high of $143.2/dmt on Jan. 2, S&P Global Commodity Insights data showed.

“The completion of pre-holiday replenishment by certain steel mills has resulted in a somewhat weak demand for iron ore,” a China-based trader said. “We are cautious of taking seaborne cargoes.”

Sources noted that seaborne restocking activities ahead of the Lunar New Year holidays for early to mid-February delivery cargoes were not up to expectations, contributing to a downward price re-adjustment.

This comes as some Chinese steel mills have extended their durations of blast furnace maintenance, with mills around Shanxi and Hebei provinces in central China heard to have scheduled maintenance over considerations around sluggish margins.

“While there are some doing the usual and regular maintenances, others could be [doing maintenances] due to weak margins, which could last 10-15 days, depending on each mill,” a China-based mill source said.

As margins get thinner, buyers turned more cautious to inventory management as well, further putting a toll on seaborne purchases as prices lose momentum.

“Chinese steelmakers usually have maintenances before the Lunar New Year holidays and keep high operating rates during the break,” a North China-based trader said.

In addition, seaborne prices above $140/dmt CFR China in early January were deemed unsustainable, as traders and end-users were more inclined to put spot purchases on the back foot during a period of price peak.

“There could have been more buying to stock up, but it appears not as much, so now market is eyeing how end-February delivery cargoes will fare,” a China-based iron ore trader said.

A Chinese steel mill, meanwhile, said that winter restocking is almost 70% complete and spot iron ore procurement requirements are few, especially when the cost to generate scrap turns competitive compared with pig iron production.

Despite some support coming from low iron ore port stocks — as well as strong pig iron output and positive macroeconomics around the announcement of government infrastructure support in 2023 — further upside on prices in Q1 2024 could be limited, according to sources.

Mills may opt to use the most cost-effective raw materials as sintering or blending feedstock, with attention centered around medium-grade fines or those with lower Fe content as an economical solution.