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Iron ore got off to a strong start in the first months of 2024, mainly due to higher prices and heavy imports from China. Turning to iron ore futures, many investors were optimistic that the world’s largest ore buyer would continue to provide enough stimulus to boost demand.
Iron ore is an important raw material in steel manufacturing, and China remains the world’s largest producer. Investor optimism may overshadow relatively subdued December Chinese steel production data as positive sentiment and several fundamental factors continue to support the iron ore market. It turned out to be strong enough.
Will Singapore iron ore futures fluctuate?
For example, the iron ore contract in Singapore ended on January 26 at US$135.31 per tonne. The stock rose after two weeks of decline.according to Reuters, the contract was 1% higher than the previous January low of $133.99 per tonne. In fact, ore prices have been on an upward trend since August 2023.
In parallel with China’s main domestic price benchmark, global prices are also rising. Dalian Commodity Exchange’s iron ore futures contract reflected this, closing at 988 yuan ($137.68) per tonne on January 26. This is a 6% increase from the recent low of 932.5 yuan ($137.68) on January 18. It continues to maintain the upward trend that started from the low of 541.5 yuan on May 25, 2023.
Many analysts remain wary of China’s problems
Despite challenges in the housing market, iron ore imports into China continue to increase. Sectors such as automotive and construction continue to drive steel production and stimulate demand. But the problem is that the future remains uncertain. China set record highs for coal and iron ore imports in 2023, but the everlasting real estate crisis is likely to impact both imports and consumption.
Iron ore futures immediately fell when news of the court ruling to liquidate Evergrande came in last Tuesday. This is primarily due to concerns about the debt real estate sector in China, one of the world’s largest consumers.According to this reportThe decline came against positive sentiment stemming from China’s recent efforts to address the worsening crisis and stabilize market confidence.
Meanwhile, the May iron ore contract on China’s Dalian Commodity Exchange (DCE) ended the day trading 1.76% lower, settling at 979.5 yuan ($136.46) per tonne. This is the lowest level since January 24th.
Other factors that may affect iron ore futures
In 2023, Chinese steel mills continuously changed their iron ore consumption patterns and procurement strategies due to high profit margins. Additionally, most mills prioritized the most cost-effective mix ratios to optimize sintering or blast furnace requirements and keep iron ore inventories low.
Some experts believe this could lead to a revival of the low-grade iron ore market in 2024. In line with this idea, many Chinese factories may choose lower-grade iron ore over higher-grade iron ore to increase production efficiency. The move would cut costs and also reduce potential losses if steel prices decline. Countries like India continue to export low-grade iron ore. In fact, NMDC, India’s largest iron ore producer, recently increased prices for lump ore and fines.
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Rapid increase in iron ore production affects global market
Meanwhile, Vale SA, the world’s second-largest iron ore supplier, reported a higher-than-expected production increase in the previous quarter. This development alone could impact iron ore futures and prices.according to bloombergBrazil’s mining powerhouse continues to ramp up production efforts, recently posting its strongest December performance in five years.
The boom comes as the company makes strategic investments in its valuable Amazon operations and improves efficiency at its oldest mine in the country’s southeast. Production exceeded both the year-ago period and the prior quarter, and full-year production exceeded forecast guidance.
Written by Saurabh Darabshaw
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